Economics - Top Future Point

Economics is the social science that studies how people interact with value ; Specifically, the production , distribution , and consumption of goods and services .

Economics focuses on the behavior and interactions of economic agents and how the economy works. Microeconomics analyzes the basic elements in the economy, including individual agents and markets , their interactions and the results of interactions. Individual agents may include, for example, houses, firms, buyers and sellers. Macroeconomics analyzes the economy as a system where production, consumption, saving and investment interact, and the factors affecting it: employment of labor, capital and land resources, currency inflation , economic growth and public policies . that affect these elementsHuh. ,

Other broad distinctions within economics include advocating “what is” and “what should be”, describing “what is” and normative economics , between positive economics ; between economic theory and applied economics ; between rational and applied economics ; and between mainstream economics and heterogeneous economics . [5]

Economic analysis can be applied throughout society, in real estate , [6] business , [7] finance , health care , [8] engineering [9] and government . [10] Economic analysis also applies to such diverse subjects as crime, education , [11] family , law , politics , religion , [12] social institutions , war , [13] science , [14] and environment. [15]

Many aspects of economic science

The discipline was renamed in the late 19th century, largely due to Alfred Marshall, as a shortened term for “economic science” from “political economy” to “economics”. At that time, it became more open to rigorous thinking and made greater use of mathematics, which helped support efforts to accept it as a science separate from political science and other social sciences. ^[A]^[17]^[18]^[19]

There are a variety of modern definitions of economics; Some reflect emerging views of the subject or differing views among economists. ^[20]^[21] The Scottish philosopher Adam Smith (1776) defined political economy at the time as “an inquiry into the nature and causes of the wealth of nations”, in particular:

A branch of the science of a statesman or legislator [with the twin objectives of providing] plentiful revenue or subsistence for the people … [and] to supply the state or Commonwealth with revenue for public services. ^[22]

Jean-Baptiste Say (1803), separating the subject from its public-policy uses, defines it as the science of the production, distribution and consumption of wealth. ^[23] On the sarcastic side, Thomas Carlyle (1849) coined “disappointing science” as an adjective for classical economics, in this context, usually linked to the pessimistic analysis about Malthus (1798). ^[24] John Stuart Mill (1844) defines the subject in social terms:

The science that ascertains the laws of such phenomena of society as result from the joint actions of mankind for the production of wealth, in so far as those events are not modified by the discovery of some other thing. ^[25]

Alfred Marshall in his textbook Principles of Economics (1890) provides a still widely cited definition that extends the analysis beyond money and from the social to the microeconomic level:

Economics is the study of man in the ordinary business of life. It inquires how he gets his income and how he uses it. Thus, it is a part of the study of money, on the one hand, and the more important side, the study of man on the other. ^[26]

Lionel Robbins (1932) developed the implications of what he called “[p]erhaps the most commonly accepted current definition of the subject”: ^[21]

Economics is a science that studies human behavior as a relationship between scarce means and ends with alternative uses. ^[27]

Robbins describes the definition not as a classification in “choosing certain types of behaviours” , but rather analytically in “focus[ing] attention to a particular aspect of the behavior, imposed by the effect of reduction”. Gone is the form.” ^[28] He affirmed that previous economists have usually focused their studies on the analysis of wealth: how wealth is created (produced), distributed and consumed; And how can wealth grow? ^[29] But he noted that economics can be used to study other things, such as war, that are outside its general focus. This is because the goal of war is to win it (a sought afteras an end ), generates both cost and benefit; And, resources (human life and other costs) are used to achieve the goal . If the war is not winnable or if the expected cost exceeds the benefit, the decision-making actors (assuming they are rational) may never go to war ( decision ), but instead explore other alternatives. We cannot define economics as the science that studies economic analysis of money, war, crime, education, and any other field that can be applied; But, as the science that studies a particular general aspect of each of those subjects (they all use scarce resources to achieve a desired end).

Some later commentaries criticized the definition for failing to limit its subject matter to the analysis of markets. By the 1960s, however, such observations as behavioral maximizing economic theory and rational-choice modeling expanded the domain of the subject to areas previously treated in other areas. ^[30] There are other criticisms as well, such as not accounting for the macroeconomics of high unemployment in the deficit. ^[31]

Gary Baker, a contributor to the expansion of economics into new areas, describes the approach he advocates as “the combination[ing] of the notions of behavior maximization, stable preferences and market equilibrium, used continuously and uninterruptedly.” is done.” ^[32]One comment describes this comment as making economics an approach rather than a subject matter, but with great specificity as “the choice process and type of social interaction that involves [such] analysis”. The same source reviews a range of definitions included in the theory of economics textbooks and concludes that the lack of agreement need not affect the subjectivity that the texts consider. Commonly among economists, it is argued that a particular definition presented may reflect the direction to which the author believes economics is developing, or should be developing. ^[21]

History

Economic writing dates back to earlier Mesopotamian, Greek, Roman, Indian subcontinent, Chinese, Persian and Arab civilizations. ^{[ citation needed ]} Economic precepts occur throughout the writings of the Boeotian poet Hesiod, and many economic historians have described himself as “the first economist”. ^[33] Other notable writers from antiquity to the Renaissance include Aristotle, Xenophon, Chanakya (also known as Kautilya), Qin Shi Huang, Thomas Aquinas, and Ibn Khaldun. Joseph Schumpeter described Aquinas as “coming closer to being the “founder” of scientific economics than any other group, as in the monetary, natural-law perspective. As is the interest and value principle. ^[34]^[^{failed verification}^]1638 painting of a French port during the heyday of mercantilism

The two groups, later referred to as “merchantists” and “materialists”, more directly influenced the later development of the subject. Both groups were associated with the rise of economic nationalism and modern capitalism in Europe. Mercantilism was an economic theory that flourished in a prolific pamphlet literature from the 16th to the 18th centuries, whether of merchants or politicians. It is believed that the wealth of a country depends on its accumulation of gold and silver. Nations without access to mines could only obtain gold and silver from trade by selling goods abroad and restricting imports other than gold and silver. This principle called for the import of cheap raw materials used in manufacturing goods, which could be exported,^[35]

The Physiocrats, a group of 18th-century French thinkers and writers, developed the idea of the economy as a circular flow of income and production. Physiocrats believed that only agricultural production produces a clear surplus over cost, so agriculture is the basis of all wealth. Thus, he opposed the mercantile policy of promoting manufacturing and trade at the expense of agriculture, including import duties. Physiocrats advocated replacing administratively expensive tax collection with a single tax on the income of landowners. In reaction against the abundant trade trade rules, the Physiocrats advocated a policy of laissez-faire , which called for minimal government intervention in the economy. ^[36]

Adam Smith (1723–1790) was an early economic theorist. ^[37] Smith was harshly critical of traders, but he described the materialist system “with all its flaws” as “perhaps the purest approximation of the truth that has yet been published” on the subject. ^[38]

Classical political economy

Adam Smith’s publication of The Wealth of Nations in 1776 has been described as “the effective birth of economics as a separate discipline”. ^{[39] The} book identified land, labor, and capital as the three factors of production and major contributors to a nation’s wealth, as opposed to the materialistic view that only agriculture was productive.

Smith discusses the potential benefits of specialization by the division of labor, including increased labor productivity and benefits from trade, whether between cities and countries or between countries. ^[40] His “theorem” that “the division of labor is limited by the limits of the market” has been described as “the core of the theory of the functions of the firm and the industry” and “a fundamental principle of economic organisation”. ^[41] Smith has also been called “the most important fundamental proposition in all areas of economics” and the foundation of resource-allocation theory—that, under competition, resource owners (of labor, land and capital) seek their most profitable uses. We do, which results in the same rate of return for all uses in equilibrium (adjusted for the apparent difference arising from factors such as training and unemployment). ^[42]

In an argument that includes “one of the most famous passages in all economics”, ^[43] Smith refers to each individual as attempting to employ any capital they may command for their own benefit. are, and not for society, ^[b] and for the sake of profit, which is necessary at some stage to infuse capital into the domestic industry, and is positively related to the value of the produce. ^[45] In this:

He generally, in fact, neither intends to promote the public interest, nor is aware of how much he is promoting it. By prioritizing domestic support over foreign industry, it only intends to protect itself; And by directing that industry in such a way that his produce may have the greatest value, he intends only his profit, and he is in it, as in many other cases, to an end led by an invisible hand. Part of his intention to promote what was not. Nor is it always bad for society that he was not a part of it. By pursuing his own interest he often promotes society more effectively than he actually intended to promote it. ^[46]

Rev. Thomas used the concept of Robert Malthus (1798) to explain diminishing standard of living with diminishing returns. He argued that the human population, overtaking the production of food, tended to grow geometrically, which grew arithmetically. The force of a rapidly growing population against a limited amount of land meant a reduction in the returns of labour. The result, he claimed, was chronically low wages, which prevented the standard of living of the majority of the population from rising above the subsistence level. ^[47] Economist Julian Lincoln Simon has criticized Malthus’s findings. ^[48]

While Adam Smith emphasized the production of income, David Ricardo (1817) focused on the distribution of income among the landlords, workers and capitalists. Ricardo saw an inherent conflict between the landlords on the one hand and labor and capital on the other. He stated that the growth of population and capital, exerting pressure against a fixed supply of land, increases rents and reduces wages and profits. Ricardo was the first to state and propounded the principle of comparative advantage, according to which each country should specialize in the production and export of goods with a low relative cost of production, but dependent only on its own production. ^[49] This has been called a “fundamental analytical explanation” for profit from business. ^[50]

Coming to the end of the classical tradition, John Stuart Mill (1848) distinguished the company with the earlier classical economists on the inevitability of the distribution of income produced by the market system. Mill pointed to a distinct distinction between the two roles of the market: the allocation of resources and the distribution of income. The market may be efficient in the allocation of resources, but not in the distribution of income, he wrote, requiring society to intervene.

Value theory was important in classical theory. Smith wrote that “the real price of everything … is the effort and trouble to achieve it”. Smith postulated that, along with rent and profit, costs other than wages also enter the price of a commodity. ^[52] Other classical economists differed on what Smith called the ‘labour theory of value’. Classical economics focuses on the tendency of any market economy to settle into a final steady state made up of a constant stock of material wealth (capital) and a constant population size.

Marxism

Marxist (later, Marxist) economics descends from classical economics and is derived from the work of Karl Marx. The first volume of Marx’s major work, Das Kapital, was published in German in 1867. In it, Marx focused on the labor theory of value and the theory of surplus value, which, he believed, explained the exploitation of labor by capital. ^[53] The labor theory of value held that the value of an exchange commodity is determined by the labor that goes into its production and the theory of surplus value demonstrated how workers were paid only a proportion of the value of their work. went. ^[54]^{[ doubtful – discussion ]}

Neoclassical Economics

At dawn as a social science, economics was defined and discussed in detail by Jean-Baptiste as the study of the production, distribution and consumption of wealth, in his treatise on political economy or, production, distribution. and the consumption of money (1803). These three items are considered by science only in relation to the increase or decrease of wealth and not in terms of the processes of their execution. ^[c] The definition of say, prevalent to our time, has been saved by substituting the word “money” for “goods and services” implying that money can also include non-material goods. One hundred and thirty years later, Lionel Robbins observed that this definition was no longer sufficient, ^[d]Because many economists were making theoretical and philosophical inroads into other areas of human activity. In his Essay on the Nature and Importance of Economic Science , he proposed the definition of economics as the study of a particular aspect of human behavior that falls under the influence of scarcity, ^[e]Which forces people to choose, allocate scarce. Resources to eliminate competition, and economical (seeking the greatest welfare while avoiding wastage of scarce resources). For Robbins, inadequacy was resolved, and his definition gives us an easy conscience, as legitimate subjects of education economics, safety and security economics, health economics, war economics, and of course, production, distribution and consumption economics. allows to declare. Economic science.” Quoting Robbins: “Economics is the science that studies human behavior as the relationship between ends and scarce means that have alternative uses.” ^[28]After discussing it for decades, Robbins’ definition was widely accepted by mainstream economists, and has paved the way for current textbooks. ^[55] Although far from unanimous, most mainstream economists will accept some version of Robbins’ definition, even though many have raised serious objections to the scope and methodology of economics that derives from that definition. ^{[56] ]} Due to the lack of strong consensus, and that the production, distribution and consumption of goods and services are major areas of study in economics, the old definition still stands for several quarters.

A body of theory later termed “neoclassical economics” or “marginalism” formed from 1870 to 1910. The term “economics” was popularized by such neoclassical economists as Alfred Marshall as a shortened synonym for “economic science” and as an earlier alternative. ” political economy “. ^[18] [19] This is in line with the impact on the subject of mathematical methods used in the natural sciences. ^[57]

Neoclassical economics arranged supply and demand as joint determinants of price and quantity in market equilibrium, affecting both the allocation of output and the distribution of income. It moved away from the marginal utility theory of value on the demand side and the labor theory of value inherited from classical economics in favor of a more general theory of cost on the supply side. ^[58] In the 20th century, neoclassical theorists moved away from the earlier notion, which suggested that total utility for a society can be measured in favor of gradual utility, which is only behavior-based relationships between individuals. envisions. ^[59]^[60]

In microeconomics, neoclassical economics represents cost, playing a broad role in shaping incentives and decision-making. An immediate example of this is the consumer theory of individual demand, which separates how prices (as cost) and income affect quantity demanded. ^[59] In Macroeconomics it appears in an early and permanent neoclassical synthesis with Keynesian macroeconomics. ^[61] [59]

Neoclassical economics is sometimes referred to as conservative economics whether by its critics or sympathizers. Modern mainstream economics is based on neoclassical economics, but with a number of refinements that complement or generalize earlier analysis, such as econometrics, game theory, analysis of market failure and imperfect competition, and the long-term effects of national income. A neoclassical model of economic development to analyze the variables over time. ,

Neoclassical economics studies the behavior of individuals, families, and organizations (called economic actors, players or agents) as they manage or use scarce resources with alternative uses to achieve desired goals. Agents are assumed to act rationally, have several desirable ends in sight, have limited resources to achieve these ends, a set of stable priorities, a definite overall guiding objective, and the ability to make a choice. . An economic problem exists, subject to study by economic science, when decisions (choices) are made by one or more resource-controlled players to obtain the best possible outcome under constrained rational conditions. In other words, the information held by the resource-control agent agent, subject to the constraints imposed by their cognitive limitations and limited time to make and execute decisions that maximize value. Economic science focuses on the activities of economic agents that comprise society.^[62] They are the focus of economic analysis. ^[f]

One way to understand these processes through the study of agent behavior under reduction may be as follows:

The constant interaction (exchange or trade) carried out by economic actors in all markets determines prices for all goods and services, which in turn makes possible the rational management of scarce resources. At the same time, decisions (choices) made by the same actors while they are pursuing their own interests determine the level of production (output), consumption, saving and investment in an economy, as well as remuneration. (distribution) paid to the owners of labor (in the form of wages), capital (in the form of profit) and land (in the form of rent). ^[g]Each period, as if they were in a giant feedback system, economic players influence pricing processes and the economy, and are in turn influenced by them until a steady state (equilibrium) of all the variables involved is reached. Or the external shock throws the system towards a new equilibrium point. Due to the autonomous actions of rational interacting agents, the economy is a complex adaptive system. ^[h]

Keynesian economics

Keynesian economics derives from John Maynard Keynes, particularly his book The General Theory of Employment, Interest and Money (1936), which introduced contemporary macroeconomics as a distinct field. ^[63] The book focuses on the determinants of national income in the short run when prices are relatively low. Keynes attempted to explain in broad theoretical detail why high labor-market unemployment may not self-correct due to low “effective demand” and why price flexibility and monetary policy may also be unavailable. The term “revolutionary” has been applied to the book in its impact on economic analysis. ^[64]

Keynesian economics has two successors. Post-Keynesian economics also focuses on macroeconomic rigidity and adjustment processes. Research on the microscopic foundations for their models is represented by real-life practices rather than simple adaptation models. It is generally associated with the work of the University of Cambridge and Joan Robinson. ^[65]

New-Keynesian economics is also associated with the development of Keynesian fashion. Researchers within this group, along with other economists, emphasize models employing subtle foundations and optimizing behavior, but a narrow focus on normative Keynesian topics such as price and wage rigidity. These are generally constructed as endogenous features of the model rather than perceived as older Keynesian-style ones.

Chicago School of Economics

The Chicago School of Economics is known for its free market support and monetarist views. According to Milton Friedman and the Monetarists, market economies are inherently stable if the money supply does not expand or contract too much. Former Federal Reserve Chairman Ben Bernanke is among economists today who have accepted Friedman’s analysis of the causes of the Great Depression. ^[66]

Milton Friedman effectively took and modernized many of the basic principles set forth by Adam Smith and classical economists. An example of this is his article in the September 13, 1970 issue of The New York Times Magazine , in which he claims that the social responsibility of a business should be “to use its resources and engage in activities designed to increase its profits . .. (through) open and free competition without deception or fraud.” ^[67]

Other Schools and Approaches

Other well-known schools or trends of thought that refer to a particular style of economics practiced from well-defined groups of academics known around the world include the Austrian School, the Freiburg School, the Lausanne School, and the Post-Keynesian School. Economics and Stockholm School. Contemporary mainstream economics is sometimes distinguished ^{[ by whom? ]} in the saltwater approach of those universities along the east and west coasts of the US, and in the freshwater, or Chicago-school approach. ^{[ citation needed ]}

The general order of their historical appearance in literature is within macroeconomics; Classical Economics, Neoclassical Economics, Keynesian Economics, Neoclassical Synthesis, Monetarism, New Classical Economics, New Keynesian Economics ^[68] and New Neoclassical Synthesis. ^{[69] In} general, alternative development includes ecological economics, constitutional economics, institutional economics, evolutionary economics, dependency theory, structuralist economics, world systems theory, economics, feminist economics, and biophysical economics. ^[70]

Economic system

Economic systems is the branch of economics that studies the ways and institutions by which societies determine the ownership, direction, and allocation of economic resources. An economic system is the unit of analysis of a society.

Contemporary systems at different ends of the organizational spectrum are socialist systems and capitalist systems, with most of the production being state-run and private enterprises, respectively. In between are mixed economies. A common element is the interaction of economic and political influences, broadly described as political economy. Comparative economic systems studies the relative performance and behavior of different economies or systems. ^[71]

The US Export-Import Bank defines a Marxist-Leninist state with a centrally planned economy. ^[54] They are now rare; Examples can still be seen in Cuba, North Korea and Laos. ^[72]^{[ needs update ]}

Principle

Mainstream economic theory relies on an elementary quantitative economic model, which employs a variety of concepts. The theory generally proceeds with the notion of ceteris paribus , which means holding a continuous explanatory variable other than the one under consideration. When creating theories, the aim is to find those that are least simple in information requirements, more accurate in predictions, and more useful in generating additional research than prior theories. ^[73] While neoclassical economic theory constitutes the dominant or conservative theoretical as well as methodological framework, economic theory can also take the form of other schools of thought such as in heterogeneous economic theories.

In microeconomics, principal concepts include supply and demand, marginalism, rational choice theory, opportunity cost, budget constraints, utility, and firm theory. ^[74] Early macroeconomic models focused on modeling relationships among aggregate variables, but as the relationships appeared to change over time, macroeconomists, including the new Keynesians, improved their models to microfoundation. ^[75]

The above microeconomic concepts play a major role in macroeconomic models – for example, in monetary theory, quantity theory of money predicts that an increase in the rate of growth of the money supply leads to an increase in inflation, and considers inflation to be influenced by rational expectations. goes . In development economics, slow growth in developed countries has sometimes been predicted because of declining marginal returns of investment and capital, and this is seen in the Four Asian Tigers. Sometimes an economic hypothesis is only qualitative , not quantitative . ^[76]

Interpretations of economic logic often use two-dimensional graphs to illustrate theoretical relationships. At a high degree of generality, Paul Samuelson’s treatise Foundations of Economic Analysis (1947) used mathematical methods beyond graphs to represent theory, in particular to maximize the behavioral relationships of agents reaching equilibrium. The book focuses on examining a class of statements in economics called operational semantic theorems , which are theorems that can be hypothetically refuted by empirical data. ^[77]

Branches of economics

Micro economics

Microeconomics examines how the entities that make up a market structure interact within a market to form a market system. These entities include private and public players of various classifications, which usually operate under a lack of tradable entities and light government regulation. ^{[ clarification needed ]} The traded item may be a tangible product such as an apple or a service such as repair services, legal counsel, or entertainment.

In theory, in a free market the aggregate (sum) of the quantity demanded by buyers and quantity supplied by sellers could reach economic equilibrium in response to price changes over time; In practice, various issues can strike a balance, and no balance may necessarily be morally justified. For example, if the supply of health services is limited by external factors, the equilibrium price may not be affordable for many people who want it but cannot pay for it.

Various market structures exist. In perfectly competitive markets, there are no participants large enough to have market power to determine the price of a homogeneous product. In other words, each participant is a “price taker” because no partner influences the price of the product. In the real world, markets often experience imperfect competition.

Forms include monopoly (in which there is only one seller of a commodity), monopoly (in which there are only two sellers of a commodity), oligopoly (in which there are few sellers of a commodity), monopolistic competition (in which there are many sellers of highly differentiated goods). of production), monopsony (in which there is only one buyer of a good), and oligopsony (in which there are few buyers of a good). Unlike perfect competition, imperfect competition means that market power is unevenly distributed. Firms under imperfect competition have the ability to be “price makers”, meaning that, by holding a disproportionately high share of market power, they can influence the prices of their products.

Microeconomics studies individual markets by simplifying the economic system by assuming that activity in the market being analyzed does not affect other markets. This method of analysis is known as partial-equilibrium analysis (supply and demand). This method aggregates (the sum of all activities) in only one market. Common-equilibrium theory studies different markets and their behavior. It aggregates (sum of all activities) across all markets . This method studies both the changes taking place in the markets and their interactions leading to equilibrium. ^[78]

Production, cost and efficiency

In microeconomics, production is the conversion of input into output. It is an economic process that uses inputs to create a good or service for exchange or direct use. Production is a flow and thus is the rate of production per period. Distinctions include production choices such as consumption (food, haircuts, etc.) versus investment goods (new tractors, buildings, roads, etc.), public goods (national defence, smallpox vaccination, etc.) or personal goods (new computers). , bananas, etc.), and “guns” versus “butter”.

Opportunity cost is the economic cost of production: the value of the next best opportunity left. A choice must be made between desirable but mutually exclusive actions. It has been described as expressing “the basic relationship between scarcity and choice”. ^[79]For example, if a baker uses a sack of flour to make pretzels one morning, the baker can’t use the flour or morning instead to make a bagel. Part of the cost of making pretzels is that neither the flour nor the morning is available for use in any other way. The opportunity cost of an activity is an element in ensuring that scarce resources are used efficiently, such that the cost is decided to be more or less relative to the value of that activity. Opportunity costs are not limited to monetary or financial costs, but can be measured by the actual cost of production forgone, leisure, or anything else that provides an alternative benefit (utility). ^[80]

Materials used in the production process include primary factors of production such as labor services, capital (durable production goods used in production, such as an existing factory), and land (including natural resources). Other inputs may include intermediate goods used in the production of the final goods, such as the steel in a new car.

Economic efficiency measures how well a system produces the desired output with a given set of inputs and available technology. If more output is produced without changing the input, or in other words, the amount of “waste” is reduced, then efficiency is improved. A widely accepted general standard is Pareto efficiency, which is achieved when another change can make someone better without making someone else worse.

Production Possibility Limit (PPF) is a descriptive statistic used to represent scarcity, cost, and efficiency. In the simplest case an economy can only produce two goods (such as “guns” and “butter”). The PPF is a table or graph (on the right) that shows the different quantity combinations of two goods produced with a given technology and the total factor input, which limits the viable total output. Each point on the curve represents the potential total output for the economy, which is the maximum possible output of one good, given the viable production quantity of the other good.

The reduction in the figure is represented by those willing but unable to consume beyond the negative slope of the PPF (eg at X ) and the curve. ^{[81] If the production of one good}increases along the curve, the output of the other good decreases , an inverse relationship. This is because increasing the output of one good requires shifting inputs from the output of the other good, reducing the latter.

The slope of the curve at a point on it gives the trade-off between the two goods. It measures whether an additional unit of one good costs in discarded units of another good, an example of true opportunity cost . Thus, if another gun costs 100 units of butter, then the opportunity cost of one gun is 100 units of butter. With PPF , scarcity means that choosing more than one good in the aggregate has to work with less of the other good. Nevertheless, in a market economy, movement along the curve may indicate that the alternative to increased production is estimated to be worth the cost to the agents.

By construction, each point on the curve represents productive efficiency in maximizing output for a given total of inputs . A point inside the curve (as at A ) is possible, but represents a production inefficiency (useless use of inputs), in which production of one or both of the goods can increase by moving in a north-easterly direction to a point on the curve. . Examples of such inefficiency include high unemployment during a business-cycle recession or the economic organization of a country that discourages the full use of resources. Being on the curve still cannot fully satisfy allocation efficiency (also called Pareto efficiency) if it does not create a mix of goods that consumers prefer at other points.

Much applied economics in public policy is concerned with determining how the efficiency of an economy can be improved. Recognizing the reality of scarcity and then figuring out how to organize society for the most efficient use of resources has been described as “the essence of economics”, where the subject “makes its own unique contribution.” ^[82]

Specialization

Specialization is considered the key to economic efficiency, based on theoretical and empirical considerations. Different people or nations may have different real opportunity costs of production, say by differences in shares of human capital worker or the capital/labor ratio per worker. According to the theory, this can give a comparative advantage in producing goods that use more intensive, thus relatively cheaper, inputs in relatively abundant quantities.

Even if a sector has an absolute advantage in each type of output as a proportion of its output, it may still specialize in the output in which it has a comparative advantage and thus be able to specialize in that sector. There is profit from trading together in which there is no absolute profit but there is a comparative advantage in producing something else.

It has been observed that there is a high volume of trade between regions, including high-income countries, even with a mix of similar technology and factor inputs. It has examined economies of scale and group to explain specialization in similar but differentiated product lines for the overall benefit of the respective business parties or regions. ^[83]

The general principle of specialization applies to trade between individuals, farms, manufacturers, service providers and economies. In each of these production systems, there may be an equal division of labor with different work groups , or correspondingly different types of capital equipment and differentiated land use. ^[84]

An example that combines the above characteristics is a country that specializes in the production of high-tech knowledge products, as developed countries do, and trades with developing countries for goods produced in factories where labor is relatively cheap and cheap. is plentiful, resulting in variation in the opportunity cost of production. Greater total output and utility would thus result from specialization in production and trade, if each country produced its own high-tech and low-tech products.

Theory and observation have determined the conditions that market prices of outputs and producer inputs choose to allocate to factor inputs by comparative advantage, so that (relatively) low-cost inputs can produce low-cost outputs. In this process, the total output may increase as a by-product or by design. ^[85] Such specialization of production creates opportunities for profit from trade whereby resource owners profit from trading in selling one type of production for other, more highly valued goods. One measure of profit from trading is the increased level of income that can facilitate trading. ^[86]

Supply and demand

Prices and quantities are described as the most directly observable characteristics of goods produced and exchanged in a market economy. ^[87] Supply and demand theory is an organized theory to explain how prices coordinate the quantities produced and consumed. In microeconomics, it applies to price and production determination for a market with perfect competition, which includes the condition of no buyers or sellers to engage in a price-setting large enough to power.

For a given market of a commodity, demand is the quantity that all buyers would be willing to buy for each unit price of the commodity. Demand is often represented by a table or graph showing the price and quantity demanded (as shown in the figure). Demand theory describes individual consumers as rationally choosing the most preferred quantity of each good, given income, prices, tastes, etc. A term for this is “constrained utility maximization” (with income and money as constraints on demand). Here, utility refers to the relation hypothesized for ranking each consumer’s individual commodity bundles as more or less preferred.

The law of demand states that, in general, in a given market, price and quantity demanded are inversely proportional. That is, the higher the price of a product, the less people are willing to buy (other things unchanged). As the price of a commodity falls, consumers move to a more expensive commodity (the substitution effect). In addition, a fall in the price increases the purchasing power (income effect). Other factors can change demand; For example, an increase in income will shift the demand curve for a normal commodity relative to the origin, as shown in the figure. All the determinants are taken primarily as the constant factors of demand and supply.

Supply is the relationship between the price of a commodity and the quantity available for sale at that price. It can be represented in the form of a table or graph relating to price and quantity supplied. Producers, for example business firms, are hypothesized to be profit maximisers, meaning they try to produce and supply the quantity of goods that will bring them the most profit. Supply is usually represented as a function related to price and quantity, if other factors are unchanged.

That is, the higher the price the commodity can be sold for, the more producers will supply it, as shown in the figure. Higher price makes it profitable to increase production. Just as on the demand side, supply conditions can change, such as a change in the price of a producer input or a technological improvement. The “law of supply” states that, in general, an increase in price causes an expansion in supply and a fall in price causes a contraction in supply. Here too, the determinants of supply, such as substitute price, cost of production, applied technology and various factor inputs of production, are all assumed to be constant for a specific time period of the valuation of supply.

Market equilibrium occurs when the quantity supplied equals the quantity demanded, decreasing the intersection of supply and demand as in the figure above. At a price below equilibrium, there is a shortage of the quantity supplied compared to the quantity demanded. This price is positioned above the bid. At a price above equilibrium, there is a surplus of the quantity supplied compared to the quantity demanded. This pushes the price down. The supply and demand model predicts that for given supply and demand curves, price and quantity will stabilize at a price that makes the quantity supplied equal the quantity demanded. Similarly, demand and supply theory predicts a change in demand (as in data), or a new price-quantity combination in supply.

firms

People often do not trade directly in the markets. Instead, on the supply side, they can work and produce through firms . The most obvious types of firms are corporations, partnerships and trusts. According to Ronald Coase, people begin to organize their production into firms when the cost of doing business becomes less than what they do on the market. ^[88] Firms combine labor and capital, and can achieve far greater economies of scale than individual market trading (when the average cost per unit declines as more units are produced).

In perfectly competitive markets studied in the theory of supply and demand, there are many producers, none of which significantly affect the price. Industrial organization generalizes from that particular case to the study of the strategic behavior of firms that have significant control of price. It considers the structure of such markets and their interactions. Common market structures studied in addition to perfect competition include monopolistic competition, various forms of oligarchy, and monopolies. ^[89]

Managerial economics applies microeconomic analysis to specific decisions in business firms or other management units. It draws heavily from quantitative methods such as operations research and programming, and from statistical methods such as regression analysis in the absence of certainty and complete knowledge. A unifying theme is the effort to optimize business decisions, including unit-cost minimization and profit maximization, given the firm’s objectives and constraints imposed by technology and market conditions. ^[90]

Uncertainty and game theory

Uncertainty in economics is an unknown probability of gain or loss, whether quantifiable as risk or not. Without it, domestic behavior would be unaffected by uncertain employment and income prospects, financial and capital markets would reduce the exchange of the same instrument in each market period, and there would be no communications industry. ^[91] Given its various forms, there are various ways of representing uncertainty and modeling the reactions of economic agents to it. ^[92]

Game theory is a branch of applied mathematics that considers strategic interactions between agents, a type of uncertainty. It provides the mathematical basis of industrial organization, discussed above, to model different types of firm behavior, for example in a single industry (few vendors), but equally in wage negotiation, bargaining, contract design. and is applicable in any situation where the individual agents are sufficient to exert a perceptible effect on each other. In behavioral economics, this strategy has been used to model the choices agents choose when interacting with others whose interests are at least partially counterproductive to their own. ^[93]

In this, it generalizes the maximization approach developed to analyze market actors such as supply and demand models and allows for incomplete information of the actors. This area is from the 1944 classic Theory of Games and Economic Behavior by John von Neumann and Oscar Morgenstern . It has important applications outside economics in disciplines as diverse as the formulation of nuclear strategies, ethics, political science, and evolutionary biology. ^[94]

Risk aversion can promote activity that smooths out risk and communicates risk information in well-functioning markets, such as in markets for insurance, commodity futures contracts and financial instruments. Financial economics or simply finance describes the allocation of financial resources. It also analyzes the pricing of financial instruments, the financial structure of companies, the efficiency and fragility of financial markets, ^{[95] the financial crisis and related government policy or regulation.}^[96]

Some market organizations can lead to inefficiencies associated with uncertainty. Based on George Akerloff’s “Market for Lemons” article, the paradigmatic example is of a dodgy second-hand car market. Without the customer knowing whether the car is “lemon” or not, it costs less than the quality of a second hand car. ^[97] If the seller has more relevant information than the buyer, but has no incentive to disclose it, information asymmetry arises here. Related problems in insurance are adverse selection, such as those with the highest risk most likely to be insured (say reckless drivers), and moral hazard, such as whether insurance results in risky behavior (say more reckless driving). . ^[98]

Both problems can drive up insurance costs and reduce efficiency by driving otherwise willing traders (“imperfect markets”) out of the market. In addition, attempting to mitigate one problem, such as adverse selection by mandating insurance, may add to another problem, such as moral hazard. Information economics, which studies such problems, has relevance in disciplines such as insurance, contract law, system design, monetary economics and health care. ^[98] Applicable topics include market and legal measures to spread or mitigate risk, such as warranties, government-mandated partial insurance, restructuring or bankruptcy laws, oversight and regulation for quality and information disclosure. ^[99]^[100]

market failure

The term “market failure” encompasses a number of problems that can undermine standard economic assumptions. Although economists classify market failures differently, the following categories emerge in the main texts. ^[I]

Information asymmetry and incomplete markets may result in economic inefficiency, but there may also be potential for improving efficiency through market, legal and regulatory measures, as discussed above.

Natural monopolies, or the overlapping concepts of “practical” and “technical” monopolies, are an extreme case of the failure of competition as a restraint on producers. Extreme economies of scale are one possible cause.

Public goods are those goods which are in short supply in a specific market. The defining characteristics are that people can consume public goods without paying and that more than one person can consume a good at the same time.

Externalities occur when production or consumption results in significant social costs or benefits that are not reflected in market prices. For example, air pollution may produce a negative externality, and education may produce a positive externality (less crime, etc.). Governments often tax and otherwise prohibit the sale of goods that have negative externalities and subsidize or otherwise promote the purchase of goods with positive externalities in an attempt to correct price distortions caused by these externalities. ^[101] Elementary demand and supply theory predicts equilibrium but not the pace of adjustment for changes in equilibrium due to changes in demand or supply. ^[102]

In many regions, some form of price viscosity is adjusted in the short term to changes in either the demand side or the supply side, rather than by quantity. It includes a standard analysis of the business cycle in macroeconomics. Analysis often revolves around the causes of such price stickiness and their impact on reaching a long-lasting equilibrium. Examples of such price stickiness in specialized markets include wage rates in labor markets and posted prices in markets deviating from perfect competition.

Some specific areas of economics deal more with market failure than others. Public sector economics is an example. Much environmental economics deals with externalities or “public evil”.

Policy choices include rules that reflect cost-benefit analysis or market solutions that replace incentives, such as emissions tariffs or redefinition of property rights. ^[103]

Public area

Public finance is the field of economics that deals with the budgeting of revenue and expenditure of a public sector entity, usually the government. The topic addresses such matters as tax incidence (who actually pays a particular tax), cost-benefit analysis of government programs, the impact on economic efficiency and income distribution of different types of spending and taxes, and fiscal politics. The latter, an aspect of public choice theory, models public sector behavior in line with microeconomics, involving interactions of self-interested voters, politicians and bureaucrats. ^[104]

Much of economics is positive, seeking to describe and predict economic events. Normative economics attempts to identify what economies should be like .

Welfare economics is a standard branch of economics that uses microeconomic techniques to simultaneously determine allocation efficiency and its associated income distribution within an economy. It attempts to measure social welfare by examining the economic activities of the individuals involved in the society. ^[105]

Macroeconomics

Macroeconomics examines the economy as a whole, using a simplified form of general-equilibrium theory to explain broad aggregates and their interactions “top down”. ^[106] Such aggregates include subgroups such as national income and output, unemployment rates, and price inflation, and aggregate consumption and investment spending and their components. It also studies the effects of monetary policy and fiscal policy.

Since at least the 1960s, macroeconomics has been characterized by further integration in the form of micro-based modeling of sectors, including the rationalization of players, efficient use of market information, and imperfect competition. ^[107] It addressed a long-standing concern about the inconsistent development of a single subject. ^[108]

Macroeconomic analysis also considers the long-term level of national income and the factors affecting growth. Such factors include capital accumulation, technological change and labor force growth. ^[109]

Development

Development economics studies the factors that explain economic growth – the increase in per capita output of a country over a long period of time. Similar factors are used to explain differences in per capita production levels between countries , specifically why some countries grow faster than others, and whether countries converge at similar rates of growth.

The more studied factors include the rate of investment, population growth and technological change. These are represented in theoretical and empirical forms (as in neoclassical and endogenous development models) and in development accounting. ^[110]

Business cycle

The economics of a depression was the impetus for the creation of “macroeconomics” as a separate discipline. During the Great Depression of the 1930s, John Maynard Keynes authored a book entitled Employment, Interest and Money General Theory outlining the key principles of Keynesian economics. Keynes argued that during economic recessions aggregate demand for goods may be insufficient, leading to unnecessarily high unemployment and potential loss of output.

He therefore advocated proactive policy responses by the public sector, including monetary policy action by the central bank and fiscal policy action by the government to stabilize output over the business cycle. ^[111] Thus, a central finding of Keynesian economics is that, in some situations, no robust automatic mechanism drives production and employment to full employment levels. The IS/LM model by John Hicks has been the most influential interpretation of The General Theory .

Over the years, the understanding of the business cycle has split into various research programs, mostly related to or separate from Keynesianism. Neoclassical synthesis with Keynesian economics refers to the reconciliation of neoclassical economics stating that Keynesianism is correct in the short run but intermediate and considered in the neoclassical way qualified in the long run. ^[61]

Different from the Keynesian view of the business cycle, the new classical macroeconomics clears the market with incomplete information. This includes Friedman’s sustainable income hypothesis on consumption and the “rational expectations” theory led by Robert Lucas, ^[112] and the real business cycle theory. ^[113]

In contrast, the new Keynesian approach retains the notion of rational expectations, although it considers different types of market failures. In particular, New Keynesians believe that prices and wages are “sticky”, meaning that they do not adjust immediately to changes in economic conditions. ^[75]

Thus, the New Classics assume that prices and wages are automatically adjusted in order to achieve full employment, whereas the New Keynesians see full employment as being attained only automatically in the long run, and therefore government and Central-bank policies are needed because “long term” can be very long.

Unemployment

The amount of unemployment in an economy is measured by the unemployment rate, the percentage of unemployed workers in the labor force. The labor force consists only of workers actively looking for jobs. People who are retired, seeking education, or discouraged from looking for work because of lack of job prospects are excluded from the labor force. Unemployment can generally be divided into several types which are related to different causes. ^[114]

The classical model of unemployment occurs when wages are too high for employers to be willing to hire more workers. Analogous to classical unemployment, frictional unemployment occurs when suitable job vacancies exist for a worker, but the length of time required to try and find a job leads to a period of unemployment. ^[114]

Structural unemployment covers various possible causes of unemployment which include a mismatch between the skills of workers and the skills required for open jobs. ^[115] Large amounts of structural unemployment can occur when an economy is switching industries and workers find that their previous skills are no longer in demand. Structural unemployment is similar to frictional unemployment because both reflect the problem of matching workers with job vacancies, but structural unemployment involves the time required to acquire new skills, not just the short-term search process. ^[116]

While some types of unemployment can occur regardless of the state of the economy, cyclical unemployment occurs when growth stagnates. Okun’s law represents the empirical relationship between unemployment and economic growth. ^[117] The original version of Okun’s law stated that a 3% increase in output would reduce unemployment by 1%. ^[118]

Inflation and Monetary Policy

Money is a means of final payment for goods in most price system economies , and it is the unit of account in which prices are usually stated. Money has longevity with general acceptability, relative stability in price, divisibility, stability, portability, elasticity of supply, and public confidence. This includes currency and checkable deposits held by the non-bank public. It has been described as a social convention that, like language, is useful to one as it is useful to others. In the words of the famous 19th century economist Francis Amasa Walker, “money is what money does” (“money is what money does”). ^[119]

Money as a medium of exchange facilitates trade. It is essentially a measure of value and more importantly a store of value which is the basis of credit creation. Its economic function can be distinguished from barter (non-monetary exchange). Given a diverse array of goods produced and specialty producers, there may be a difficult-to-detect double coincidence for barter, such as when apples and a book are exchanged. Currency can reduce the transaction cost of exchange due to its ready acceptability. Then it is less expensive for the seller to accept the money in return, rather than what the buyer produces. ^[120]

At the level of an economy, theory and evidence are consistent with a positive relationship running from aggregate money supply to the nominal value of aggregate output and the general price level. For this reason, managing the money supply is a major aspect of monetary policy. ^[121]

Treasury policy

Governments apply fiscal policy to influence macroeconomic conditions by adjusting spending and taxation policies to replace aggregate demand. When aggregate demand falls below the economy’s potential output, a production gap occurs where some productive capacity remains unemployed. Governments increase spending and cut taxes to boost aggregate demand. The government can use the idle resources.

For example, unemployed home builders may be hired to expand highways. Tax cuts allow consumers to increase their spending, which boosts aggregate demand. Tax cuts and spending both have multiplier effects where the initial increase in demand from the policy spreads through the economy and generates additional economic activity.

The effect of fiscal policy can be limited by crowding. When there is no production gap, the economy is producing at full capacity and there are no additional productive resources. If the government increases spending in this situation, the government uses resources that would otherwise have been used by the private sector, so there is no increase in total output. Some economists think that congestion is always an issue while others do not think that it is a major issue when there is a decrease in production.

Skeptics of fiscal policy also argue for Ricardian equivalence. They argue that future tax increases will be accompanied by paying off the increase in debt, allowing people to reduce their consumption and save money to pay for future tax increases. Under Ricardian equivalence, any increase in demand from tax cuts would be offset by increased savings for the purpose of paying higher taxes in the future.

International Economics

International trade studies the determinants of goods and services flowing across international borders. It is also related to the size and distribution of profits from the business. Policy applications include assessing the effects of changing tariff rates and trade quotas. International finance is a macroeconomic field that examines the flow of capital across international borders and the effects of these movements on exchange rates. Increased trade in goods, services and capital between countries is a major effect of contemporary globalization. ^[122]

Development Economics

Development economics examines the economic aspects of the economic development process in relatively low-income countries, with a focus on structural change, poverty, and economic growth. Approaches in development economics often incorporate social and political factors. ^[123]

Labor economics

Labor economics attempts to understand the workings and dynamics of markets for wage labor. Labor markets function through the interaction of workers and employers. Labor economics looks at suppliers of labor services (workers), demands for labor services (employers), and attempts to understand the resulting patterns of wages, employment, and income. In economics, labor is a measure of work done by man. This is traditionally in contrast to other factors of production such as land and capital. There are theories that have developed a concept called human capital (referring to the skills that workers possess, not necessarily their actual work), although there are also contrasting macro-economic systems theories which think that human capital is in context. There is a contradiction in

Welfare economics

Welfare economics uses microeconomics techniques to evaluate well-being within an economy from the allocation of productive factors such as desirability and economic efficiency, often relative to a competitive general equilibrium. ^{[124] It analyzes}social welfare in terms of the economic activities of the individuals , though measured, who make up the theoretical society. Accordingly, individuals with allied economic activities are the basic units for aggregating social welfare, whether that of a group, community or society, and there is no “social welfare” other than the “welfare” associated with its individual units. ,

Agreement

According to various random and anonymous surveys of members of the American Economic Association, economists have agreed on a percentage basis regarding the following propositions: ^[125]^[126]^[127]^{[128] [129}^]

A ceiling on rent reduces the quantity and quality of housing available. (93% agree)
Tariffs and import quotas usually reduce general economic welfare. (93% agree)
Flexible and floating exchange rates provide an effective international monetary system. (90% agree)
Fiscal policy (for example, tax cuts and/or increased government spending) has a significant stimulating effect on a less than fully planned economy. (90% agree)
Employers from the United States should not limit outsourcing work to foreign countries. (90% agree)
Economic growth in developed countries like the United States leads to a higher level of well-being. (88% agree)
The United States should end agricultural subsidies. (85% agree)
A properly designed fiscal policy can increase the long-term rate of capital formation. (85% agree)
Local and state governments should end subsidies to professional sports franchises. (85% agree)
If the federal budget is to be balanced, it must be done on the business cycle rather than annually. (85% agree)
If current policies remain unchanged, the gap between Social Security funding and spending will become permanently larger within the next fifty years. (85% agree)
Cash payments increase the welfare of recipients to a greater extent than transfers of the same cash value. (84% agree)
A large federal budget deficit has an adverse effect on the economy. (83%) agree
The redistribution of income in the United States is a legitimate role for the government. (83%) agree
Inflation is mainly caused by a large increase in the money supply. (83%) agree
The United States should not ban genetically modified crops. (82% agree)
A minimum wage increases unemployment among young and unskilled workers. (79% agree)
The government should restructure the welfare system on the lines of “negative income tax”. (79% agree)
Effective taxes and marketable pollution permits represent a better approach to pollution control than imposing pollution limits. (78% agree)
Government subsidies on ethanol in the United States should be reduced or eliminated. (78% agree)

Criticisms

General criticism

“Disappointing science” is a derogatory alternative name for economics coined by the Victorian historian Thomas Carlyle in the 19th century. It is often said that Carlyle nicknamed economics a “disappointing science” as a response to the late 18th-century writings of The Reverend Thomas Robert Malthus, who critically predicted that starvation would result, because Projected population growth had exceeded the rate of increase. food supply. However, the actual phrase was coined by Carlyle in reference to a debate with John Stuart Mill on slavery, in which Carlyle argued for slavery, while Mill opposed it. ^[24]

In The Wealth of Nations , Adam Smith addressed many issues that are currently also the subject of debate and controversy. Smith repeatedly attacks groups of politically aligned individuals who attempt to use their collective influence to manipulate the government into doing their bidding. In Smith’s day, these were referred to as factions, but are now more commonly called special interests, a term that can include international bankers, corporate groups, outright elites, monopolies, trade unions, and other groups. . ^[J]

Per se , economics , as a social science, is independent of the political function of any government or other decision-making organization; However, many policy makers or individuals who hold high-ranking positions that can influence the lives of other people arbitrarily use economic concepts and rhetoric as vehicles to legitimize agendas and value systems. and does not limit his comments to matters relating to his responsibilities. ^[130] The close relationship of economic theory and practice with politics ^[131] is a focus of controversy that may shadow or distort the most obvious core principles of economics, and is often confused with specific social agendas and value systems. ^[132]

Despite this, economics legitimately has a role to play in informing government policy. It is, in fact, in some ways a result of the old sector of political economy. Some academic economic journals have increased their efforts to assess the consensus of economists about certain policy issues in hopes of influencing a more informed political environment. Low approval rates from professional economists often exist in relation to many public policies. Policy issues shown in a survey of economists from the American Economic Association included trade embargoes, social insurance for those left out of work by international competition, genetically modified foods, curbside recycling, health insurance (many questions), medical malpractice, Barriers to entering the medical profession include: , organ donation, unhealthy foods, mortgage deduction,^[133]

Issues such as central bank independence, rhetorical discourse in central bank policies and central bank governors or the complex of macroeconomic policies ^[134] (of monetary and fiscal policy) of the state, are the focus of controversy and criticism. ^{[ By whom? ]}^[135]

Deirdre McCloskey has argued that many empirical economic studies are poorly reported, and she and Stephen Zilliak argue that although their criticism is well received, the practice has not improved. ^[136] This latter argument is controversial. ^[137]

Critique of beliefs

Economics has historically been the subject of criticism for relying on unrealistic, unverified, or overly simplistic assumptions in some cases, as these assumptions simplify the proof of desired conclusions. Examples of such assumptions include correct information, profit maximization and rational choice, the axioms of neoclassical economics. ^[138] Such criticisms often combine neoclassical economics with all contemporary economics. ^[139]^[140] The field of information economics includes both mathematical-economic research and behavioral economics, similar to studies in behavioral psychology, and confounding factors for neoclassical assumptions are the subject of substantial study in many areas of economics. ^[141]^[142]^[143]

Key historical mainstream economists such as Keynes ^[144] and Josco observed that much of economics of their time was conceptual rather than quantitative, and was difficult to model and formalize quantitatively. In a discussion on elite research, Paul Josco pointed out in 1975 that in practice, serious students of real economies tend to use “informal models” based on qualitative factors specific to particular industries. Josko had a strong feeling that in oligopoly important work was done through informal observations while formal models were “out of position “. He argued that formal models were largely unimportant in empirical work, and that the fundamental factor behind the theory of firm behavior was neglected. ^[145]Woodford noted in 2009 that this is no longer the case, and with a stronger focus on testable quantitative function, modeling has improved significantly in both theoretical rigor and empiricism. ^[146]

In the 1990s, feminist criticisms of the neoclassical economic model gained prominence, leading to the creation of feminist economics. ^[147] Feminist economists draw attention to the social construction of economics and claim to uncover the ways in which its models and methods reflect masculine preferences. Primary criticisms focus on perceived failures: the selfish nature of the actors (Home Economics); exogenous taste; impossibility of utility comparison; exclusion of unpaid work; and the exclusion of class and gender considerations. ^[148]

Practice

Contemporary economics uses mathematics. Economists use tools from calculus, linear algebra, statistics, game theory, and computer science. ^[155] Professional economists are expected to be familiar with these tools, while a minority specialize in econometrics and mathematical methods.

Empirical investigation

Economic theories are often tested empirically, largely through the use of econometrics using economic data. ^[156] Controlled experiments common to the physical sciences are difficult and unusual in economics, ^[157] and instead extensive data is studied observationally; This type of test is generally considered less rigorous than a controlled experiment, and the findings are usually more tentative. However, the field of experimental economics is growing, and natural experiments are being used more and more.

Statistical methods such as regression analysis are common. Clinicians use such methods to estimate the size, economic significance and statistical significance (“signal strength”) of the hypothesized relationship(s), and to adjust for noise from other variables. In this way, a hypothesis can gain acceptance, though in a probability, rather than of course, meaning. Acceptance is dependent on surviving tests of the false hypothesis. The use of generally accepted methods is not required to form a final conclusion or a consensus on a particular question, given differing trials, data sets, and prior assumptions.

Criticisms based on non-replication of professional standards and results serve as further checks against bias, errors, and over-generalization, ^[158]^[159] although much economic research has been accused of being non-replicative. is, and reputed magazines have been accused. Not facilitating replication through provision of code and data. ^[160] Like theories, the use of test data itself is open to critical analysis, ^[161] although the US Economic ReviewCritical comments on papers in economics in reputed journals like Economics have declined sharply over the past 40 years. This has been attributed to the encouragement of journals to maximize citations in order to rank higher on the Social Science Citation Index (SSCI). ^[162]

In applied economics, input-output models employing linear programming methods are quite common. Large amounts of data are run through computer programs to analyze the impact of some policies; Implan is a well-known example.

Experimental economics has promoted the use of scientifically controlled experiments. It has reduced the long-standing distinction of economics from the natural sciences because it allows direct testing of things that were previously taken as axioms. ^[163] In some cases it has been found that the axioms are not entirely correct; For example, the Ultimatum game showed that people reject unequal offers.

In behavioral economics, psychologist Daniel Kahneman won the Nobel Prize in Economics in 2002 for his and Amos Tversky’s empirical discovery of several cognitive biases and heuristics. Similar empirical testing occurs in neuroeconomics. Another example is the assumption of narrow selfish preferences versus a model that tests for selfish, altruistic and cooperative preferences. ^[164] These techniques have led some to argue that economics is a “real science”. ^[165]

Business

The commercialization of economics, reflected in the development of graduate programs on the subject, has been described as “the main change in economics since 1900”. ^[166] Most major universities and many colleges have a major, school, or department in which to award academic degrees in the subject, whether for liberal arts, business, or professional studies. See Bachelor of Economics and Master of Economics.

In the private sector, professional economists are employed in advisory and industry, including banking and finance. Economists also work for various government departments and agencies, for example, the National Treasury, the Central Bank or the Bureau of Statistics.

Dozens of prizes are awarded each year to economists for outstanding intellectual contributions to the field, the most prominent of which is the Nobel Memorial Prize in Economic Sciences, although it is not a Nobel Prize.

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