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{{about|the social science}}
Maple Grove earned high marks in Money Magazine's national "Best Places to stay at" opt in list.<br><br>
{{Outline|Outline of economics}}
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{{Economics sidebar}}


Economics is a social science that studies how rational individuals, groups, and organizations (called economic actors, players, or agents), manage scarce resources which have alternative uses, to achieve desirable ends. On the one hand, the continuous interplay done by these economic actors in all markets set the prices for all goods and services which make the rational managing of scarce resources possible in the first place. And on the other hand the decisions taken by the same agents, while pursuing their own interest, determine the level of output (production), consumption, savings and investment in an economy, as well as the remuneration paid to the owners of labor,capital and land.
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The term ''economics'' comes from the [[Ancient Greek]] {{lang|grc|[[wikt:οἰκονομία|οἰκονομία]]}} (''{{lang|grc-Latn|oikonomia}}'', "management of a household, administration") from {{lang|grc|[[wikt:οἶκος|οἶκος]]}} (''{{lang|grc-Latn|oikos}}'', "house") and {{lang|grc|[[wikt:νόμος|νόμος]]}} (''{{lang|grc-Latn|nomos}}'', "custom" or "law"), hence "rules of the house(hold)".<ref name="etymology">{{cite web | last = Harper | first = Douglas | authorlink = Douglas Harper | title = Online Etymology Dictionary&nbsp;– Economy |date=November 2001 | url = http://www.etymonline.com/index.php?term=economy | accessdate=October 27, 2007}}</ref> [[Political economy]] was the earlier name for the subject, but economists in the late 19th century suggested "economics" as a shorter term for "economic science" that also avoided a narrow ''political-interest'' connotation and as similar in form to "[[mathematics]]", "ethics", and so forth.<ref name="MarshallJevons">• [[Alfred Marshall|Marshall, Alfred]], and [[Mary Paley Marshall]] (1879). ''The Economics of Industry'', Macmillan, p. [http://books.google.com/books?id=wFc4yr9xfqAC&printsec=find&pg=PA2#v=onepage&q&f=false 2.]<br />&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; • [[William Stanley Jevons|Jevons, W. Stanley]] (1879). ''The Theory of Political Economy'', 2nd ed., Macmillan. p. [http://books.google.com/books?id=aYcBAAAAQAAJ&printsec=find&pg=PR14#v=onepage&q&f=false xiv].</ref>
 
A focus of the subject is how [[Agent (economics)|economic agents]] behave or interact and how [[economy|economies]] work. Consistent with this, a primary textbook distinction is between microeconomics and macroeconomics. [[Microeconomics]] examines the behavior of basic elements in the economy, including individual agents (such as households and firms or as buyers and sellers) and markets, and their interactions. [[Macroeconomics]] analyzes the entire economy and issues affecting it, including unemployment, inflation, economic growth, and monetary and fiscal policy.
 
Other broad distinctions include those between [[positive economics]] (describing "what is") and [[normative economics]] (advocating "what ought to be"); between economic theory and [[applied economics]]; between [[Rational choice theory|rational]] and [[behavioral economics]]; and between [[mainstream economics]] (more "orthodox" and dealing with the "rationality-individualism-equilibrium nexus") and [[heterodox economics]] (more "radical" and dealing with the "institutions-history-social structure nexus").<ref>Andrew Caplin and Andrew Schotter, ''The Foundations of Positive and Normative Economics'', Oxford University Press, 2008, ISBN 0-19-532831-0</ref><ref>Davis, John B. (2006). "Heterodox Economics, the Fragmentation of the Mainstream, and Embedded Individual Analysis", in ''Future Directions in Heterodox Economics''. Ann Arbor: University of Michigan Press.</ref>
 
Economic analysis may be applied throughout society, as ''in'' [[business economics|business]], [[financial economics|finance]], [[Health economics|health care]], and government, but also ''to'' such diverse subjects as crime,<ref>[[David D. Friedman|Friedman, David D.]] (2002). [http://www.econlib.org/LIBRARY/Enc/Crime.html "Crime,"] ''The Concise Encyclopedia of Economics.'.' Retrieved October 21, 2007.</ref> [[education economics|education]],<ref>[[The World Bank]] (2007). [http://go.worldbank.org/78EK1G87M0 "Economics of Education."]. Retrieved October 21, 2007.</ref> the [[Family economics|family]], [[Law and economics|law]], [[public choice|politics]], [[Economics of religion|religion]],<ref>Iannaccone, Laurence R. (1998). "Introduction to the Economics of Religion", ''Journal of Economic Literature'', 36(3), [http://webcache.googleusercontent.com/search?q=cache:kzBioz_tiS8J:www.religionomics.com/old/erel/S2-Archives/Iannaccone%2520-%2520Introduction%2520to%2520the%2520Economics%2520of%2520Religion.pdf+%22Introduction+to+the+Economics+of+Religion%22&hl=en&ct=clnk&cd=1&gl=us pp. 1465–1495.].</ref> [[Institutional economics|social institutions]], war,<ref>[[William D. Nordhaus|Nordhaus, William D.]] (2002). "The Economic Consequences of a War with Iraq", in ''War with Iraq: Costs, Consequences, and Alternatives'', [http://nordhaus.econ.yale.edu/AAAS_War_Iraq_2.pdf pp. 51–85.] American Academy of Arts and Sciences. Cambridge, Massachusetts. Retrieved October 21, 2007.</ref> and [[economics of science|science]].<ref>Arthur M. Diamond, Jr. (2008). "science, economics of", ''[[The New Palgrave Dictionary of Economics]]'', 2nd Edition, Basingstoke and New York: [[Palgrave Macmillan]]. Pre-publication [http://archive.is/20120927155248/http://cba.unomaha.edu/faculty/adiamond/web/diamondpdfs/palgraveeconsci07.pdf cached ccpy.]</ref> At the turn of the 21st century, the expanding domain of economics in the social sciences has been described as [[economic imperialism (economics)|economic imperialism]].<ref name="Imperialism">• [[Edward Lazear|Lazear, Edward P.]] (2000|. "Economic Imperialism", ''Quarterly Journal Economics'', 115(1)|, [http://www.jstor.org/pss/2586936 p. 99]–146. [http://66.102.1.104/scholar?hl=en&lr=&q=cache:fD0VzttXRUMJ:flash.lakeheadu.ca/~kyu/E5111/Lazear2000.pdf+ Cached copy.] [http://66.102.1.104/scholar?hl=en&lr=&q=cache:lK_6EHxTuCoJ:faculty-gsb.stanford.edu/lazear/personal/PDFs/economic%2520imperialism.pdf+ Pre-publication copy](larger print.)<br />&nbsp;&nbsp; • [[Gary Becker|Becker, Gary S.]] (1976). ''The Economic Approach to Human Behavior''. [http://books.google.com/books?id=iwEOFKSKbMgC&dq=%22The+Economic+Approach+to+Human+Behavior%22+Introduction&lr=&source=gbs_summary_s&cad=0 Links] to arrow-page viewable chapter. University of Chicago Press.</ref>
 
[[File:GDP growth (annualized).png|thumb|550px|A world map of [[List of countries by GDP growth 1990–2007|GDP growth (annualized), from 1990 to 2007]].]]
 
==Definitions==
[[File:Map of countries by GDP (nominal) in US$.png|thumb|550px|A map of [[List of countries by GDP (nominal)|world economies by size of GDP (nominal)]] in $US, ''[[CIA World Factbook]]'', 2011.<ref name="CIA">{{cite web|url=https://www.cia.gov/library/publications/the-world-factbook/fields/2195.html|title=GDP (Official Exchange Rate)|publisher=[[CIA World Factbook]]|accessdate=June 2, 2012}}</ref>]]
 
There are a variety of modern [[definitions of economics]]. Some of the differences may reflect evolving views of the subject or different views among economists.<ref name="Backhouse">• [[Roger E. Backhouse|Backhouse, Roger E.]], and Steven Medema (2008). "economics, definition of", ''The New Palgrave Dictionary of Economics'', 2nd Edition, pp. 720–22. [http://www.dictionaryofeconomics.com/article?id=pde2008_E000291&q=definitions&topicid=&result_number=5 Abstract.]<br />&nbsp;&nbsp; • _____ (2009). "Retrospectives: On the Definition of Economics", ''Journal of Economic Perspectives'', 23(1), pp. [http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.221 221–33].</ref> [[Scotland|Scottish]] philosopher [[Adam Smith]] (1776) defined what was then called [[political economy]] as "an inquiry into the nature and causes of the wealth of nations", in particular as:
:a branch of the science of a statesman or legislator [with the twofold objectives of providing] a plentiful revenue or subsistence for the people&nbsp;... [and] to supply the state or commonwealth with a revenue for the publick services.<ref name="Groenwegen">Smith, Adam (1776). ''An Inquiry into the Nature and Causes of the Wealth of Nations'', and Book IV, as quoted in Peter Groenwegen (1987) [[The New Palgrave Dictionary of Economics|[2008]]]), "'political economy' and 'economics'", ''[[The New Palgrave: A Dictionary of Economics]]'', v. 3, p. 905 [pp.&nbsp;904–07 (brief [http://www.dictionaryofeconomics.com/search_results?q=%22political+economy+and+economics%22+Groenewegen&edition=current&button_search=GO link]).</ref>
 
[[Jean-Baptiste Say|J.-B. Say]] (1803), distinguishing the subject from its [[public policy|public-policy]] uses, defines it as the science ''of'' production, distribution, and consumption of [[wealth]].<ref>Say, Jean-Baptiste (1803). ''A Treatise on Political Economy; or the Production, Distribution, and Consumption of Wealth'', trans. 1834, C. C. Biddle, ed., Grigg and Elliot.</ref> On the [[satirical]] side, [[Thomas Carlyle]] (1849) coined "[[the dismal science]]" as an [[Epithet#Alternative contemporary usage|epithet]] for [[classical economics]], in this context, commonly linked to the pessimistic analysis of [[Malthus]] (1798).<ref name="Dismal">• [Carlyle, Thomas] (1849). "Occasional Discourse on the N[egro] Question", ''Fraser's Magazine'', republished in ''Works of Thomas Carlyle'', 1904, v. 29, Charles Scribner's Sons, pp. 348–383.<br />&nbsp;&nbsp; • Malthus, Thomas (1798). ''[[An Essay on the Principle of Population]].''<br />&nbsp;&nbsp; • Persky, Joseph (1990). "Retrospectives: A Dismal Romantic", ''Journal of Economic Perspectives'', 4(4), pp. 166–169 [pp. [http://www.jstor.org/pss/1942728 165]-172].</ref> [[John Stuart Mill]] (1844) defines the subject in a social context as:
:The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.<ref>Mill, John Stuart (1844). "On the Definition of Political Economy; and on the Method of Investigation Proper to It", [http://www.econlib.org/library/Mill/mlUQP5.html Essay V], in ''Essays on Some Unsettled Questions of Political Economy'' (V39). (Accessed Nov 2011)</ref>
 
[[Alfred Marshall]] provides a still widely cited definition in his textbook ''[[Principles of Economics (Marshall)|Principles of Economics]]'' (1890) that extends analysis beyond [[Economic wealth|wealth]] and from the [[societal]] to the [[microeconomic]] level:
:Economics is a study of man in the ordinary business of life. It enquires how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man.<ref>Marshall, Alfred (1890 [1920]). ''Principles of Political Economy'', v. 1, pp. 1–2 [8th ed.]. London: Macmillan.</ref>
 
[[Lionel Robbins]] (1932) developed implications of what has been termed "[p]erhaps the most commonly accepted current definition of the subject":<ref>Backhouse, Roger E., and Steven Medema (2009). "Retrospectives: On the Definition of Economics", ''Journal of Economic Perspectives'', 23(1), p. 225. [pp. [http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.221 221–33.]</ref>
:Economics is a science which studies [[human behaviour]] as a relationship between ends and scarce means which have alternative uses.<ref>Robbins, Lionel (1932). ''[[An Essay on the Nature and Significance of Economic Science]]'', p. [http://books.google.com/books?id=nySoIkOgWQ4C&printsec=find&pg=PA15#v=onepage&q&f=false 15]. London: Macmillan. Links for [http://books.google.com/books?id=nySoIkOgWQ4C&printsec=find&pg=PR10#v=onepage&q&f=false 1932 HTML] and 2nd ed., [http://www.scribd.com/doc/14242989/An-Essay-on-the-Nature-and-Signicance-of-Economic-Science-Lionel-Robbins- 1935 facsimile].</ref>
 
Robbins describes the definition as not ''classificatory'' in "pick[ing] out certain ''kinds'' of behaviour" but rather ''analytical'' in "focus[ing] attention on a particular ''aspect'' of behaviour, the form imposed by the influence of [[scarcity]]."<ref>Robbins, Lionel (1932). ''An Essay on the Nature and Significance of Economic Science'', p. [http://books.google.com/books?id=nySoIkOgWQ4C&printsec=find&pg=PA16#v=onepage&q&f=false 16].</ref>
 
Some subsequent comments criticized the definition as overly broad in failing to limit its subject matter to analysis of markets. From the 1960s, however, such comments abated as the economic theory of maximizing behavior and [[rational choice|rational-choice]] modeling [[Economic imperialism (economics)|expanded the domain]] of the subject to areas previously treated in other fields.<ref name="Backhouse2009Stigler">• Backhouse, Roger E., and Steven G. Medema (2009). "Defining Economics: The Long Road to Acceptance of the Robbins Definition", ''Economica'', 76(302), [http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0335.2009.00789.x/full#ss4 V. Economics Spreads Its Wings]. [Pp. [http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0335.2009.00789.x/full 805–820].]<br />&nbsp;&nbsp; • [[George J. Stigler|Stigler, George J.]] (1984). "Economics—The Imperial Science?" ''Scandinavian Journal of Economics'', 86(3), pp. [http://www.jstor.org/pss/3439864 301]-313.</ref> There are other criticisms as well, such as in scarcity not accounting for the [[macroeconomics]] of high unemployment.<ref>[[Mark Blaug|Blaug, Mark]] (2007). "The Social Sciences: Economics", ''The New Encyclopædia Britannica'', v. 27, p. 343 [pp. 343–52].</ref>
 
[[Gary Becker]], a contributor to the expansion of economics into new areas, describes the approach he favors as "combin[ing the] assumptions of maximizing behavior, stable [[preference (economics)|preferences]], and [[economic equilibrium|market equilibrium]], used relentlessly and unflinchingly."<ref>Becker, Gary S. (1976). ''The Economic Approach to Human Behavior'', Chicago, [http://books.google.com/books?id=iwEOFKSKbMgC&printsec=fnd&pg=PA5=gbs_v2_summary_r&cad=0#v=onepage&q&f=false p. 5].</ref> One commentary characterizes the remark as making economics an approach rather than a subject matter but with great specificity as to the "choice process and the type of [[social interaction]] that [such] analysis involves." The same source reviews a range of definitions included in principles of economics textbooks and concludes that the lack of agreement need not affect the subject-matter that the texts treat. Among economists more generally, it argues that a particular definition presented may reflect the direction toward which the author believes economics is evolving, or should evolve.<ref>Backhouse, Roger E., and Steven Medema (2009). "Retrospectives: On the Definition of Economics", ''Journal of Economic Perspectives'', 23(1), p. 229, Introduction, and Conclusion [pp. [http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.23.1.221 221–33].</ref>
 
==Microeconomics==
{{Main|Microeconomics}}
 
===Markets===
{{Main|Markets}}
[[File:Ballard Farmers' Market - vegetables.jpg|thumb|250px|Economists study trade, production and consumption decisions, such as those that occur in a traditional [[marketplace]].|alt=A vegetable vendor in a marketplace.]]
[[File:Sao Paulo Stock Exchange.jpg|thumb|250px|In [[Virtual Markets]], buyer and seller are not present and trade via intermediates and electronic information. Pictured: [[São Paulo Stock Exchange]].|alt=Two men sit at computer monitors with financial information.]]
Microeconomics examines how entities, forming a [[market structure]], interact within a [[market]] to create a [[market system]]. These entities include private and public players with various classifications, typically operating under scarcity of tradeable units and [[government regulation]]. The item traded may be a tangible [[product (business)|product]] such as apples or a [[Service (economics)|service]] such as repair services, legal counsel, or entertainment.
 
In theory, in a [[free market]] the [[Aggregation problem|aggregates]] (sum of) of ''quantity demanded'' by buyers and ''quantity supplied'' by sellers will be equal and reach [[economic equilibrium]] over time in reaction to price changes; in practice, various issues may prevent equilibrium, and any equilibrium reached may not necessarily [[Equity (economics)|morally equitable]]. For example, if the supply of healthcare services is limited by [[exogenous|external factors]], the equilibrium price may be unaffordable for many who desire it but cannot pay for it.
 
Various market structures exist. In [[perfect competition|perfectly competitive markets]], no participants are large enough to have the [[market power]] to set the price of a homogeneous product. In other words, every participant is a "price taker" as no participant influences the price of a product. In the real world, markets often experience [[imperfect competition]].
 
Forms include [[monopoly]] (in which there is only one seller of a good), [[duopoly]] (in which there are only two sellers of a good), [[oligopoly]] (in which there are few sellers of a good), [[monopolistic competition]] (in which there are many sellers producing highly differentiated goods), [[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 invariably means market power is unequally distributed. Firms under imperfect competition have the potential to be "price makers", which means 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 analysed does not affect other markets. This method of analysis is known as [[supply and demand|partial-equilibrium]] analysis (supply and demand). This method aggregates (the sum of all activity) in only one market. [[General equilibrium|General-equilibrium]] theory studies various markets and their behaviour. It aggregates (the sum of all activity) across ''all'' markets. This method studies both changes in markets and their interactions leading towards equilibrium.<ref>• [[Mark Blaug|Blaug, Mark]] (2007). "The Social Sciences: Economics", Microeconomics, ''The New Encyclopædia Britannica'', v. 27, pp. 347–49. Chicago. ISBN 0-85229-423-9<br />&nbsp;&nbsp; • [[Hal R. Varian|Varian, Hal R.]] (1987). "microeconomics", ''The New Palgrave: A Dictionary of Economics'', v. 3, pp. 461–63. London and New York: Macmillan and Stockton.ISBN 0-333-37235-2</ref>
 
===Production, cost, and efficiency===
{{Main|Production theory basics|Opportunity cost|Economic efficiency|Production–possibility frontier}}
In microeconomics, [[Production (economics)|production]] is the conversion of [[factor of production|inputs]] into [[Output (economics)|outputs]]. It is an economic process that uses inputs to create a [[good (economics)|commodity]] for [[trade|exchange]] or direct use. Production is a [[Stock and flow|flow]] and thus a rate of output per period of time. Distinctions include such production alternatives as for [[Consumption (economics)|consumption]] (food, haircuts, etc.) vs. [[Investment#In economics or macroeconomics|investment goods]] (new tractors, buildings, roads, etc.), [[public good]]s (national defense, small-pox vaccinations, etc.) or [[private good]]s (new computers, bananas, etc.), and [[Guns versus butter model|"guns" vs. "butter"]].
 
[[Opportunity cost]] refers to the [[economic cost]] of production: the value of the next best opportunity foregone. Choices must be made between desirable yet [[mutually exclusive]] actions. It has been described as expressing "the basic relationship between [[scarcity]] and [[choice]].".<ref>[[James M. Buchanan|Buchanan, James M.]] (1987). "opportunity cost", ''[[The New Palgrave: A Dictionary of Economics]]'', v. 3, pp. 718–21.</ref> The opportunity cost of an activity is an element in ensuring that scarce resources are used efficiently, such that the cost is weighed against the value of that activity in deciding on more or less of it. Opportunity costs are not restricted to monetary or financial costs but could be measured by the [[Real versus nominal value (economics)|real cost]] of [[Production-possibility frontier#Opportunity cost|output forgone]], [[leisure]], or anything else that provides the alternative benefit ([[utility]]).<ref>''[[The Economist]], Economics A-Z, ''[http://www.economist.com/research/Economics/searchActionTerms.cfm?query=OPPORTUNITY+COST "Opportunity Cost."] Accessed 3 Aug. 2010</ref>
 
Inputs used in the production process include such primary [[factors of production]] as [[Labour (economics)|labour services]], [[Capital (economics)|capital]] (durable produced goods used in production, such as an existing factory), and [[Land (economics)|land]] (including natural resources). Other inputs may include [[intermediate good]]s used in production of final goods, such as the steel in a new car.
 
[[Economic efficiency]] describes how well a system generates desired output with a given set of inputs and available [[technology]]. Efficiency is improved if more output is generated without changing inputs, or in other words, the amount of "waste" is reduced. A widely accepted general standard is [[Pareto efficiency]], which is reached when no further change can make someone better off without making someone else worse off.
 
[[File:Production Possibilities Frontier Curve.svg|thumb|350px|An example [[production–possibility frontier]] with illustrative points marked.]]
The [[production–possibility frontier]] (PPF) is an expository figure for representing scarcity, cost, and efficiency. In the simplest case an [[economy]] can produce just two goods (say "guns" and "butter"). The PPF is a table or graph (as at the right) showing the different quantity combinations of the two goods producible with a given technology and total factor inputs, which limit feasible total output. Each point on the curve shows [[Potential output|potential total output]] for the economy, which is the maximum feasible output of one good, given a feasible output quantity of the other good.
 
[[Scarcity]] is represented in the figure by people being willing but unable in the aggregate to consume ''beyond the PPF'' (such as at ''X'') and by the negative slope of the curve.<ref>Montani, Guido (1987), "scarcity", [[The New Palgrave: A Dictionary of Economics]], v. 4, p. 254.</ref> If production of one good ''increases'' along the curve, production of the other good ''decreases'', an [[inverse relationship]]. This is because increasing output of one good requires transferring inputs to it from production of the other good, decreasing the latter.
 
The [[slope]] of the curve at a point on it gives the [[trade-off#Examples from common life|trade-off]] between the two goods. It measures what an additional unit of one good costs in units forgone of the other good, an example of a ''real opportunity cost''. Thus, if one more Gun costs 100 units of butter, the opportunity cost of one Gun is 100 Butter. ''Along the PPF'', scarcity implies that choosing ''more'' of one good in the aggregate entails doing with ''less'' of the other good. Still, in a [[market economy]], movement along the curve may indicate that the [[utility|choice]] of the increased output is anticipated to be worth the cost to the agents.
 
By construction, each point on the curve shows ''[[productive efficiency]]'' in maximizing output for given total inputs. A point ''inside'' the curve (as at ''A''), is feasible but represents ''production inefficiency'' (wasteful use of inputs), in that output of ''one or both goods'' could increase by moving in a northeast direction to a point on the curve. Examples cited of such inefficiency include high [[unemployment]] during a [[business cycle|business-cycle]] [[recession]] or economic organization of a country that discourages full use of resources. Being on the curve might still not fully satisfy [[allocative efficiency]] (also called [[Pareto efficiency]]) if it does not produce a mix of goods that consumers prefer over 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 unique contribution."<ref>{{Cite book|first=Paul A.|last=Samuelson|authorlink2=William Nordhaus|last2=William D. Nordhaus |year=2004|title=''[[Economics (textbook)|Economics]]''|pages= ch. 1, p. 5 (quotation) and sect. C,"The Production-Possibility Frontier", pp. 9–15; ch. 2, "Efficiency" sect.; ch. 8, sect. D, "The Concept of Efficiency."|nopp=yes|publisher=McGraw-Hill}}
</ref>
 
===Specialization===
{{Main|Division of labour|Comparative advantage|Gains from trade}}
 
[[File:Late Medieval Trade Routes.jpg|thumb|450px|A map showing the main [[trade route]]s for goods within [[Late Middle Ages|late medieval Europe]].]]
Specialization is considered key to economic efficiency based on theoretical and [[empirical]] considerations. Different individuals or nations may have different real opportunity costs of production, say from differences in [[stock and flow|stocks]] of [[human capital]] per worker or [[capital (economics)|capital]]/[[labor force|labour]] ratios. According to theory, this may give a [[comparative advantage]] in production of goods that make more intensive use of the relatively more abundant, thus ''relatively'' cheaper, input.
 
Even if one region has an [[absolute advantage]] as to the ratio of its outputs to inputs in every type of output, it may still specialize in the output in which it has a comparative advantage and thereby gain from trading with a region that lacks any absolute advantage but has a comparative advantage in producing something else.
 
It has been observed that a high volume of trade occurs among regions even with access to a similar technology and mix of factor inputs, including high-income countries. This has led to investigation of economies of [[Returns to scale|scale]] and [[economies of agglomeration|agglomeration]] to explain specialization in similar but differentiated product lines, to the overall benefit of respective trading parties or regions.<ref>[[Paul Krugman|Krugman, Paul R.]] (1980). "Scale Economies, Product Differentiation, and the Pattern of Trade", ''American Economic Review'', 70(5), pp. [http://www.princeton.edu/~pkrugman/scale_econ.pdf 950–59.]<br />&nbsp;&nbsp; • William C. Strange, 2008, "urban agglomeration", ''The New Palgrave Dictionary of Economics'', 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_U000064&q=agglomeration&topicid=&result_number=1 Abstract.]</ref>
 
The general theory of specialization applies to trade among individuals, farms, manufacturers, [[Service (economics)|service]] providers, and [[economy|economies]]. Among each of these production systems, there may be a corresponding ''[[division of labour]]'' with different work groups specializing, or correspondingly different types of [[Capital (economics)|capital equipment]] and differentiated [[Land (economics)|land]] uses.<ref>• Groenewegen, Peter (2008). "division of labour", ''The New Palgrave Dictionary of Economics''. [http://www.dictionaryofeconomics.com/article?id=pde2008_D000176&edition=current&q=division%20of%20labour&topicid=&result_number=1 Abstract.]<br />&nbsp;&nbsp; • Johnson, Paul M. (2005).[http://www.auburn.edu/~johnspm/gloss/specialization "Specialization,"] ''A Glossary of Political Economy Terms''.<br />&nbsp;&nbsp; • Yang, Xiaokai, and Yew-Kwang Ng (1993). ''Specialization and Economic Organization''. [http://books.google.com/books?id=xuG4AAAAIAAJ&q=%22Specialization+and+Economic+Organization.%22&dq=%22Specialization+and+Economic+Organization.%22&hl=en&ei=1ZxZTN_nMMKgnAeOjaWKCQ&sa=X&oi=book_result&ct=result&resnum=1&ved=0CCkQ6AEwAA Description.] Amsterdam: North-Holland.</ref>
 
An example that combines features above is a country that specializes in the production of high-tech knowledge products, as developed countries do, and trades with developing nations for goods produced in factories where labour is relatively cheap and plentiful, resulting in different in opportunity costs of production. More total output and utility thereby results from specializing in production and trading than if each country produced its own high-tech and low-tech products.
 
Theory and observation set out the conditions such that market [[price]]s of outputs and productive inputs select an allocation of factor inputs by comparative advantage, so that (relatively) [[Production-possibility frontier#Opportunity cost|low-cost]] inputs go to producing low-cost outputs. In the process, aggregate output may increase as a [[invisible hand|by-product]] or by [[mechanism design|design]].<ref>[[Rondo Cameron|Cameron, Rondo]] (1993, 2nd ed.). ''A Concise Economic History of the World: From Paleolithic Times to the Present, Oxford, pp. 25, 32, 276–80.</ref> Such specialization of production creates opportunities for ''[[gains from trade]]'' whereby resource owners benefit from [[trade]] in the sale of one type of output for other, more highly valued goods. A measure of gains from trade is the ''increased income levels'' that trade may facilitate.<ref>• Samuelson, Paul A., and William D. Nordhaus (2004). ''Economics'',ch. 2, "Trade, Specialization, and Division of Labor" section, ch. 12, 15, "Comparative Advantage among Nations" section", "Glossary of Terms", Gains from trade.<br />&nbsp;&nbsp; • Findlay, Ronald (2008). "comparative advantage", ''The New Palgrave Dictionary of Economics''. [http://www.dictionaryofeconomics.com/article?id=pde2008_C000254&edition=current&q=comparative%20advantage&topicid=&result_number=1 Abstract.]<br />&nbsp;&nbsp; • Kemp, Murray C. (1987). "gains from trade", ''[[The New Palgrave: A Dictionary of Economics]]'', v. 2, pp. 453–54.</ref>
 
===Supply and demand===
{{Main|Supply and demand}}
[[File:Supply-demand-right-shift-demand.svg|thumb|350px|The [[supply and demand]] model describes how prices vary as a result of a balance between product availability and demand. The graph depicts an increase (that is, right-shift) in demand from D<sub>1</sub> to D<sub>2</sub> along with the consequent increase in price and quantity required to reach a new equilibrium point on the supply curve (S).|alt=A graph depicting Quantity on the X-axis and Price on the Y-axis]]
 
[[Prices and quantities]] have been described as the most directly observable attributes of goods produced and exchanged in a [[market]] economy.<ref>Brody, A. (1987). "prices and quantities", ''The New Palgrave: A Dictionary of Economics'', v. 3, p. 957.</ref> The theory of supply and demand is an organizing principle for explaining how prices coordinate the amounts produced and consumed. In [[microeconomics]], it applies to price and output determination for a market with [[perfect competition]], which includes the condition of no buyers or sellers large enough to have price-setting [[market power|power]].
 
For a given market of a [[Good (economics and accounting)|commodity]], ''demand'' is the relation of the quantity that all buyers would be prepared to purchase at each unit price of the good. Demand is often represented by a table or a graph showing price and quantity demanded (as in the figure). [[consumer theory|Demand theory]] describes individual consumers as [[rational choice theory|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 [[Wealth (economics)|wealth]] as the [[budget constraint|constraints]] on demand). Here, [[utility]] refers to the hypothesized relation of each individual consumer for ranking different commodity bundles as more or less preferred.
 
The [[law of demand]] states that, in general, price and quantity demanded in a given market are inversely related. That is, the higher the price of a product, the less of it people would be prepared to buy of it (other things [[ceteris paribus|unchanged]]). As the price of a commodity falls, consumers move toward it from relatively more expensive goods (the [[substitution effect]]). In addition, [[purchasing power]] from the price decline increases ability to buy (the [[income effect]]). Other factors can change demand; for example an increase in income will shift the demand curve for a [[normal good]] outward relative to the origin, as in the figure. All determinants are predominantly taken as constant factors of demand and supply.
 
''Supply'' is the relation between the price of a good and the quantity available for sale at that price. It may be represented as a table or graph relating price and quantity supplied. Producers, for example business firms, are hypothesized to be ''profit-maximizers'', meaning that they attempt to produce and supply the amount of goods that will bring them the highest profit. Supply is typically represented as a directly proportional relation between price and quantity supplied (other things unchanged).
 
That is, the higher the price at which the good can be sold, the more of it producers will supply, as in the figure. The higher price makes it profitable to increase production. Just as on the demand side, the position of the supply can shift, say from a change in the price of a productive input or a technical improvement. The "Law of Supply" states that, in general, a rise in price leads to an expansion in supply and a fall in price leads to a contraction in supply. Here as well, the determinants of supply, such as price of substitutes, cost of production, technology applied and various factors inputs of production are all taken to be constant for a specific time period of evaluation of supply.
 
[[Market equilibrium]] occurs where quantity supplied equals quantity demanded, the intersection of the supply and demand curves in the figure above. At a price below equilibrium, there is a shortage of quantity supplied compared to quantity demanded. This is posited to bid the price up. At a price above equilibrium, there is a surplus of quantity supplied compared to quantity demanded. This pushes the price down. The [[Model (economics)|model]] of supply and demand predicts that for given supply and demand curves, price and quantity will stabilize at the price that makes quantity supplied equal to quantity demanded. Similarly, demand-and-supply theory predicts a new price-quantity combination from a shift in demand (as to the figure), or in supply.
 
For a given quantity of a consumer good, the point on the demand curve indicates the value, or [[marginal utility]], to consumers for that unit. It measures what the consumer would be prepared to pay for that unit.<ref>[[William Baumol|Baumol, William J.]] (2007). "Economic Theory", Measurement and ordinal utility, ''The New Encyclopædia Britannica'', v. 17, p. 719.</ref> The corresponding point on the supply curve measures [[marginal cost]], the increase in total cost to the supplier for the corresponding unit of the good. The price in equilibrium is determined by supply and demand. In a [[perfect competition|perfectly competitive market]], supply and demand equate marginal cost and marginal utility at equilibrium.<ref name="Hicks">{{cite book | title=[[Value and Capital]]| last=Hicks| first=J.R.| authorlink=John Hicks| year=1939| publisher=Oxford University Press. 2nd ed., paper, 2001| location=London| isbn=978-0-19-828269-3}}</ref>
 
On the supply side of the market, some factors of production are described as (relatively) ''variable'' in the [[short run]], which affects the cost of changing output levels. Their usage rates can be changed easily, such as electrical power, raw-material inputs, and over-time and temp work. Other inputs are relatively ''fixed'', such as plant and equipment and key personnel. In the [[long run]], all inputs may be adjusted by [[management]]. These distinctions translate to differences in the [[Price elasticity of supply|elasticity]] (responsiveness) of the supply curve in the short and long runs and corresponding differences in the price-quantity change from a shift on the supply or demand side of the market.
 
[[marginalism|Marginalist theory]], such as above, describes the consumers as attempting to reach most-preferred positions, subject to [[Income#Meaning in economics and use in economic theory|income]] and [[Wealth (economics)|wealth]] constraints while producers attempt to maximize profits subject to their own constraints, including demand for goods produced, technology, and the price of inputs. For the consumer, that point comes where marginal utility of a good, net of price, reaches zero, leaving no net gain from further consumption increases. Analogously, the producer compares [[marginal revenue]] (identical to price for the perfect competitor) against the [[marginal cost]] of a good, with ''marginal profit'' the difference. At the point where marginal profit reaches zero, further increases in production of the good stop. For movement to market equilibrium and for changes in equilibrium, price and quantity also change "at the margin": more-or-less of something, rather than necessarily all-or-nothing.
 
Other applications of demand and supply include the [[Distribution (economics)|distribution of income]] among the [[factors of production]], including labour and capital, through factor markets. In a competitive [[labour market]] for example the quantity of labour employed and the price of labour (the wage rate) depends on the [[Labour economics#Neoclassical microeconomic model&nbsp;— Demand|demand for labour]] (from employers for production) and supply of labour (from potential workers). [[Labour economics]] examines the interaction of workers and employers through such markets to explain patterns and changes of wages and other labour income, [[labour mobility]], and (un)employment, productivity through [[human capital]], and related public-policy issues.<ref>[[Richard B. Freeman|Freeman, R.B.]] (1987). "labour economics", ''The New Palgrave: A Dictionary of Economics'', v. 3, pp. 72–76.<br />&nbsp;&nbsp; • Taber, Christopher, and Bruce A. Weinberg (2008). "labour economics (new perspectives)", ''The New Palgrave Dictionary of Economics'', 2nd Edition, [http://www.dictionaryofeconomics.com/article?id=pde2008_L000241&q=labor%20economics&topicid=&result_number=14 Abstract.]<br />&nbsp;&nbsp; • Hicks, J.R. (1963, 2nd ed.). ''[[The Theory of Wages]]''. London: Macmillan.</ref>
 
Demand-and-supply analysis is used to explain the behavior of perfectly competitive markets, but as a standard of comparison it can be extended to any type of market. It can also be generalized to explain variables across the [[economy]], for example, total output (estimated as [[real GDP]]) and the general [[price level]], as studied in [[macroeconomics]].<ref>[[Olivier Blanchard|Blanchard, Olivier]] (2006, 4th ed.). ''Macroeconomics'', ch. 7, "Putting All Markets Together: The AS–AD Model", Prentice-Hall.</ref> Tracing the [[qualitative economics|qualitative]] and quantitative effects of variables that change supply and demand, whether in the short or long run, is a standard exercise in [[applied economics]]. Economic theory may also specify conditions such that supply and demand through the market is an efficient mechanism for allocating resources.<ref>Jordan, J.S. (1982). "The Competitive Allocation Process Is Informationally Efficient Uniquely." ''Journal of Economic Theory'', 28(1), p. 1–18. {{DOI|10.1016/0022-0531(82)90088-6}}</ref>
 
===Firms===
{{Main|Theory of the firm|Industrial organization|Business economics|Managerial economics}}
 
People frequently do not trade directly on markets. Instead, on the supply side, they may work in and produce through ''firms''. The most obvious kinds of firms are [[corporation]]s, [[partnerships]] and [[trusts]]. According to [[Ronald Coase]] people begin to organise their production in firms when the costs of doing business becomes lower than doing it on the market.<ref>Coase, ''[[The Nature of the Firm]]'' (1937)</ref> Firms combine labour and capital, and can achieve far greater [[economies of scale]] (when the average cost per unit declines as more units are produced) than individual market trading.
 
In [[perfect competition|perfectly competitive]] markets studied in the theory of supply and demand, there are many producers, none of which significantly influence price. [[Industrial organization]] generalizes from that special case to study the strategic behavior of firms that do have significant control of price. It considers the structure of such markets and their interactions. Common market structures studied besides perfect competition include [[monopolistic competition]], various forms of [[oligopoly]], and [[monopoly]].<ref>Schmalensee, Richard (1987). "Industrial Organization", ''The New Palgrave: A Dictionary of Economics'', v. 2, pp. 803–808.</ref>
 
[[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 perfect knowledge. A unifying theme is the attempt to [[Optimization (mathematics)|optimize]] business decisions, including unit-cost minimization and profit maximization, given the firm's objectives and constraints imposed by technology and market conditions.<ref>• NA (2007). "managerial economics". {{cite book | title= The New Encyclopædia Britannica| date=| pages=v. 7, p. 757| publisher=The New Encyclopædia Britannica| location=Chicago| isbn=0-85229-423-9}}<br />&nbsp;&nbsp; • Hughes, Alan (1987). "managerial capitalism", ''[[The New Palgrave: A Dictionary of Economics]]'', v. 3, pp. 293–96.</ref>
 
=== Uncertainty and game theory ===
{{Main|Information economics|Game theory|Financial economics}}
[[Uncertainty]] in economics is an unknown prospect of gain or loss, whether quantifiable as [[Risk#Risk versus uncertainty|risk]] or not. Without it, household behavior would be unaffected by uncertain employment and income prospects, [[financial market|financial]] and [[capital market]]s would reduce to exchange of a single [[financial instrument|instrument]] in each market period, and there would be no [[communication]]s industry.<ref>[[Mark J. Machina|Machina, Mark J.]] and [[Michael Rothschild]] (2008). "risk", ''The New Palgrave Dictionary of Economics'', 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_R000152&edition=current&q=risk&topicid=&result_number=2 Abstract.]</ref> Given its different forms, there are various ways of representing uncertainty and modelling economic agents' responses to it.<ref>Wakker, Peter P. (2008) "uncertainty", ''The New Palgrave Dictionary of Economics'', 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_U000005&edition=current&q=Uncertainty&topicid=&result_number=2 Abstract.]</ref>
 
[[Game theory]] is a branch of [[applied mathematics]] that considers [[Strategy#Strategies in game theory|strategic interactions]] between agents, one kind of uncertainty. It provides a mathematical [[microfoundation|foundation]] of [[industrial organization]], discussed above, to model different types of firm behavior, for example in an [[oligopolist]]ic industry (few sellers), but equally applicable to wage negotiations, [[Bargaining#Game theory|bargaining]], [[Contract theory|contract design]], and any situation where individual agents are few enough to have perceptible effects on each other. As a method heavily used in [[behavioral economics]], it postulates that [[Agent (economics)|agents]] choose strategies to maximize their payoffs, given the strategies of other agents with at least partially conflicting interests.<ref name="SamUn">Samuelson, Paul A., and William D. Nordhaus (2004). ''Economics'', 18th ed., ch. 11, "Uncertainty and Game Theory" and [end] Glossary of Terms, "Economics of information", "Game theory", and "Regulation."</ref><ref>[[Colin F. Camerer]] (2003). ''Behavioral Game Theory'' [http://press.princeton.edu/chapters/i7517.html Description] and ch. 1 [http://press.princeton.edu/chapters/i7517.pdf link] (scroll down). Princeton.</ref>
 
In this, it generalizes maximization approaches developed to analyze market actors such as in the [[supply and demand]] model and allows for incomplete information of actors. The field dates from the 1944 classic ''[[Theory of Games and Economic Behavior]]'' by [[John von Neumann]] and [[Oskar Morgenstern]]. It has significant applications seemingly outside of economics in such diverse subjects as formulation of [[nuclear strategies]], [[Game theory#Philosophy|ethics]], [[Game theory#Political science|political science]], and [[evolutionary biology]].<ref>[[Robert Aumann|Aumann, R.J.]] (2008). "game theory", ''The New Palgrave Dictionary of Economics''. [http://www.dictionaryofeconomics.com/article?id=pde2008_G000007&edition=current&q=game%20theory&topicid=&result_number=4 Abstract.]</ref>
 
[[Risk aversion]] may stimulate activity that in well-functioning markets smooths out risk and communicates information about risk, as in markets for [[insurance]], commodity [[futures market|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 [[capital structure|financial structure]] of companies, the efficiency and fragility of [[financial market]]s,<ref>[[Ben Bernanke|Bernanke, Ben]] and [[Mark Gertler (economist)|Mark Gertler]] (1990). "Financial Fragility and Economic Performance", ''Quarterly Journal of Economics'', 105(1), p [http://www.jstor.org/pss/2937820 p. 87]-114.</ref> [[Financial crisis|financial crises]], and related government policy or [[Financial regulation|regulation]].<ref>From (2008), ''The New Palgrave Dictionary of Economics'', 2nd Edition:<br />&nbsp;&nbsp; • [[Stephen Ross (economist)|Ross, Stephen A.]] "finance." [http://www.dictionaryofeconomics.com/article?id=pde2008_F000071&edition=current&q=Finance&topicid=&result_number=2 Abstract.]<br />&nbsp;&nbsp; • Burnside, Craig, Martin Eichenbaum, and Sergio Rebelo. "currency crises models." [http://www.dictionaryofeconomics.com/article?id=pde2008_S000204&edition=current&q=crisis&topicid=&result_number=7 Abstract.]<br />&nbsp;&nbsp; • Kaminsky, Graciela Laura. "currency crises." [http://www.dictionaryofeconomics.com/article?id=pde2008_C000468&edition=current&q=crisis&topicid=&result_number=10 Abstract.]<br />&nbsp;&nbsp; • Calomiris, Charles W. "banking crises." [http://www.dictionaryofeconomics.com/article?id=pde2008_B000051&edition=current&q=crisis&topicid=&result_number=18 Abstract.]</ref>
 
Some market organizations may give rise to inefficiencies associated with uncertainty. Based on [[George Akerlof]]'s "[[Market for Lemons]]" article, the [[paradigm]] example is of a dodgy second-hand car market. Customers without knowledge of whether a car is a "lemon" depress its price below what a quality second-hand car would be.<ref>Akerlof, George A. (1970). "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism", ''Quarterly Journal of Economics'', 84(3), pp. [http://hydrogen.its.ucdavis.edu/eec/education/EEC-classes/eeclimate/class-readings/akerlof-the%20market%20for%20lemons.pdf 488–500.]</ref> [[Information asymmetry]] arises here, if the seller has more relevant information than the buyer but no incentive to disclose it. Related problems in insurance are [[adverse selection]], such that those at most risk are most likely to insure (say reckless drivers), and [[moral hazard]], such that insurance results in riskier behavior (say more reckless driving).<ref name="sciencedirect">Lippman, S.S., and J.J. McCall (2001). "Information, Economics of", ''[[International Encyclopedia of the Social & Behavioral Sciences]]'', pp. 7480–7486. {{DOI|10.1016/B0-08-043076-7/02244-0}}</ref>
 
Both problems may raise insurance costs and reduce efficiency in driving otherwise willing transactors from the market ("[[incomplete markets]]"). Moreover, attempting to reduce one problem, say adverse selection by mandating insurance, may add to another, say moral hazard. [[Information economics]], which studies such problems, has relevance in subjects such as insurance, [[contract theory|contract law]], [[mechanism design]], [[monetary economics]], and [[health economics|health care]].<ref name="sciencedirect" /> Applied subjects include market and legal remedies to spread or reduce risk, such as warranties, government-mandated partial insurance, [[restructuring]] or [[bankruptcy law]], inspection, and [[Regulatory economics|regulation]] for quality and information disclosure.<ref>From (2008), ''The New Palgrave Dictionary of Economics'', 2nd Edition:<br />&nbsp;&nbsp; • Wilson, Charles. "adverse selection", [http://www.dictionaryofeconomics.com/article?id=pde2008_A000040&edition=current&q=adverse%20selection&topicid=&result_number=1 Abstract.]<br />&nbsp;&nbsp; • Kotowitz, Y. "moral hazard." [http://www.dictionaryofeconomics.com/article?id=pde2008_M000259&edition=current&q=moral&topicid=&result_number=3 TOC.]<br />&nbsp;&nbsp; • [[Roger B. Myerson|Myerson, Roger B.]] "revelation principle." [http://www.dictionaryofeconomics.com/article?id=pde2008_R000137&edition=current&q=moral&topicid=&result_number=1 Abstract.]</ref><ref name="SamUn"/>
 
===Market failure===
{{Main|Market failure|Government failure|Information economics|Environmental economics|Agricultural economics}}
[[File:Smokestack in Detroit.jpg|thumb|250px|[[Pollution]] can be a simple example of market failure. If [[costs of production]] are not borne by producers but are by the environment, accident victims or others, then prices are distorted.|alt=A smokestack releasing smoke]]
 
The term "[[market failure]]" encompasses several problems which may undermine standard economic assumptions. Although economists categorise market failures differently, the following categories emerge in the main texts.<ref>• Cf. [[Nicholas Barr]] (2004), whose list of market failures is melded with failures of economic assumptions, which are (1) producers as price takers (i.e. presence of oligopoly or monopoly; but why is this not a product of the following?) (2) equal power of consumers (what labour lawyers call an imbalance of bargaining power) (3) complete markets (4) public goods (5) external effects (i.e. externalities?) (6) increasing returns to scale (i.e. practical monopoly) (7) perfect information [in his ''Economics of the Welfare State'', 4th ed., Oxford University Press, pp. 72–79].<br />&nbsp;&nbsp; • [[Joseph E. Stiglitz]] (2000) classifies market failures as from failure of competition (including [[natural monopoly]]), [[information asymmetries]], [[incomplete markets]], [[externalities]], [[public good]] situations, and [[macroeconomic]] disturbances (in his ''Economics of the Public Sector'', 3rd ed., Ch.4, W.W. Norton).</ref>
 
[[Information asymmetries]] and [[incomplete markets]] may result in economic inefficiency but also a possibility of improving efficiency through market, legal, and regulatory remedies, as discussed above.
 
[[Natural monopoly]], or the overlapping concepts of "practical" and "technical" monopoly, is an extreme case of ''failure of competition'' as a restraint on producers. The problem is described as one where the more of a product is made, the lower the unit costs are. This means it only makes economic sense to have one producer.
 
[[Public goods]] are goods which are undersupplied in a typical market. The defining features are that people can consume public goods without having to pay for them and that more than one person can consume the good at the same time.
 
[[Externalities]] occur where there are significant social costs or benefits from production or consumption that are not reflected in market prices. For example, air pollution may generate a negative externality, and education may generate a positive externality (less crime, etc.). Governments often tax and otherwise restrict the sale of goods that have negative externalities and subsidize or otherwise promote the purchase of goods that have positive externalities in an effort to correct the price [[distortions (economics)|distortions]] caused by these externalities.<ref>[[Jean-Jacques Laffont|Laffont, J.J.]] (1987). "externalities", ''The New Palgrave: A Dictionary of Economics'', v. 2, p. 263–65.</ref> Elementary demand-and-supply theory predicts equilibrium but not the speed of adjustment for changes of equilibrium due to a shift in demand or supply.<ref>[[Mark Blaug|Blaug, Mark]] (2007). "The Social Sciences: Economics". ''The New Encyclopædia Britannica''v. 27, p. 347. Chicago. ISBN 0-85229-423-9</ref>
 
In many areas, some form of [[price stickiness]] is postulated to account for quantities, rather than prices, adjusting in the short run to changes on the demand side or the supply side. This includes standard analysis of the [[business cycle]] in [[macroeconomics]]. Analysis often revolves around causes of such price stickiness and their implications for reaching a hypothesized long-run equilibrium. Examples of such price stickiness in particular markets include wage rates in labour markets and posted prices in markets [[Imperfect competition|deviating]] from [[perfect competition]].
 
[[Macroeconomics|Macroeconomic instability]], addressed below, is a prime source of market failure, whereby a general loss of business confidence or external shock can grind production and distribution to a halt, undermining ordinary markets that are otherwise sound.
 
[[File:Field Trip- water sampling.jpg|thumb|250px|[[Environmental scientist]] sampling water|alt=A woman takes samples of water from a river.]]
 
Some specialised fields of economics deal in market failure more than others. The [[economics of the public sector]] is one example, since where markets fail, some kind of regulatory or government programme is the remedy. Much [[environmental economics]] concerns externalities or "[[public bad]]s".
 
[[Policy]] options include regulations that reflect [[cost-benefit analysis]] or market solutions that change incentives, such as [[Emissions trading|emission fees]] or redefinition of property rights.<ref>• Kneese, Allen K., and Clifford S. Russell (1987). "environmental economics", ''The New Palgrave: A Dictionary of Economics'', v. 2, pp. 159–64.<br />&nbsp;&nbsp; • Samuelson, Paul A., and [[William Nordhaus|William D. Nordhaus]] (2004). ''[[Economics (textbook)|Economics]]'', ch. 18, "Protecting the Environment." McGraw-Hill.</ref>
 
===Public sector===
{{Main|Economics of the public sector|Public finance}}
{{See also|Welfare economics}}
Public finance is the field of economics that deals with budgeting the revenues and expenditures of a [[public sector]] entity, usually government. The subject addresses such matters as [[tax incidence]] (who really pays a particular tax), cost-benefit analysis of government programs, effects on [[economic efficiency]] and [[income distribution]] of different kinds of spending and taxes, and fiscal politics. The latter, an aspect of [[public choice theory]], models public-sector behavior analogously to microeconomics, involving interactions of self-interested voters, politicians, and bureaucrats.<ref>[[Richard Musgrave|Musgrave, R.A.]] (1987). "public finance", ''The New Palgrave: A Dictionary of Economics'', v. 3, pp. 1055–60.</ref>
 
Much of economics is [[positive economics|positive]], seeking to describe and predict economic phenomena. [[Normative economics]] seeks to identify what economies ''ought'' to be like.
 
Welfare economics is a normative branch of economics that uses [[microeconomics|microeconomic]] techniques to simultaneously determine the [[allocative efficiency]] within an economy and the income [[Distribution (economics)|distribution]] associated with it. It attempts to measure [[social welfare]] by examining the economic activities of the individuals that comprise society.<ref>Feldman, Allan M. (1987). "welfare economics", ''The New Palgrave: A Dictionary of Economics'', v. 4, pp. 889–95.</ref>
 
==Macroeconomics==
[[File:DiagFuncMacroSyst.pdf|thumb|450px|The circulation of money in an economy in a macroeconomic model.]]
{{Main|Macroeconomics}}
 
Macroeconomics examines the economy as a whole to explain broad aggregates and their interactions "top down", that is, using a simplified form of [[General equilibrium|general-equilibrium]] theory.<ref>Blaug, Mark (2007). "The Social Sciences: Economics", ''The New Encyclopædia Britannica'', v. 27, p. 345.</ref> Such aggregates include [[measures of national income and output|national income and output]], the [[unemployment rate]], and price [[inflation]] and subaggregates like total consumption and investment spending and their components. It also studies effects of [[monetary policy]] and [[fiscal policy]].
 
Since at least the 1960s, macroeconomics has been characterized by further integration as to [[microfoundations|micro-based]] modeling of sectors, including [[rational expectations|rationality]] of players, [[Efficient market hypothesis|efficient use]] of market information, and [[imperfect competition]].<ref>[[Yew-Kwang Ng|Ng, Yew-Kwang]] (1992). "Business Confidence and Depression Prevention: A Mesoeconomic Perspective", ''American Economic Review'' 82(2), pp. 365–371. [http://links.jstor.org/sici?sici=0002-8282%28199205%2982%3A2%3C365%3ABCADPA%3E2.0.CO%3B2-4&size=LARGE&origin=JSTOR-enlargePage]</ref> This has addressed a long-standing concern about inconsistent developments of the same subject.<ref>Howitt, Peter M. (1987). "Macroeconomics: Relations with Microeconomics".{{cite book | title=[[The New Palgrave: A Dictionary of Economics]], pp. 273–76| publisher=Macmillan and Stockton| location=London and New York| isbn=0-333-37235-2 | author=edited by John Eatwell, Murray Milgate, Peter Newman. | year=1987}}</ref>
 
Macroeconomic analysis also considers factors affecting the long-term level and [[economic growth|growth]] of national income. Such factors include capital accumulation, [[Technological change#Economics|technological change]] and [[labour force]] growth.<ref>Blaug, Mark (2007). "The Social Sciences: Economics", Macroeconomics, ''The New Encyclopædia Britannica'', v. 27, p. 349.</ref>
 
===Growth===
{{Main|Economic growth}}
 
''Growth economics'' studies factors that explain [[economic growth]]&nbsp;– the increase in output [[per capita]] of a country over a long period of time. The same factors are used to explain differences in the ''level'' of output per capita ''between'' countries, in particular why some countries grow faster than others, and whether countries [[catch-up effect|converge]] at the same rates of growth.
 
Much-studied factors include the rate of [[Investment#In economics or macroeconomics|investment]], [[population growth]], and [[Technological change#Economics|technological change]]. These are represented in theoretical and [[empirical]] forms (as in the [[neoclassical growth model|neoclassical]] and [[endogenous growth model|endogenous]] growth models) and in [[growth accounting]].<ref>• Samuelson, Paul A., and William D. Nordhaus (2004). ''[[Economics (textbook)|Economics]]'', ch. 27, "The Process of Economic Growth" McGraw-Hill. ISBN 0-07-287205-5.<br />&nbsp;&nbsp; • [[Hirofumi Uzawa|Uzawa, H.]] (1987). "models of growth", ''[[The New Palgrave: A Dictionary of Economics]]'', v. 3, pp. 483–89.</ref>
 
===Business cycle===
{{Main|Business cycle}}
{{See also|Circular flow of income|Aggregate supply|Aggregate demand|Unemployment}}
 
[[File:Economic cycle.svg|thumb|450px|A basic illustration of [[Business cycle|economic/business cycles]].]]
 
The economics of a depression were the spur for the creation of "macroeconomics" as a separate discipline field of study. During the [[Great Depression]] of the 1930s, [[John Maynard Keynes]] authored a book entitled ''[[The General Theory of Employment, Interest and Money]]'' outlining the key theories of [[Keynesian economics]]. Keynes contended that [[aggregate demand]] for goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output.
 
He therefore advocated active policy responses by the [[public sector]], including [[monetary policy]] actions by the [[central bank]] and [[fiscal policy]] actions by the government to stabilize output over the [[business cycle]].<ref>{{cite book
| last = Sullivan
| first = Arthur
  | authorlink = Arthur O' Sullivan
  | coauthors = Steven M. Sheffrin
  | title = Economics: Principles in action
  | publisher = Pearson Prentice Hall
  | year = 2003
  | location = Upper Saddle River, New Jersey 07458
  | page = 396
  | url = http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4
  | doi =
  | id =
  | isbn = 0-13-063085-3}}</ref>
Thus, a central conclusion of Keynesian economics is that, in some situations, no strong automatic mechanism moves output and employment towards [[full employment]] levels. [[John Hicks]]' [[IS/LM]] model has been the most influential interpretation of ''The General Theory''.
 
Over the years, understanding of the [[business cycle]] has branched into various [[research program]]s, mostly related to or distinct from Keynesianism. The [[neoclassical synthesis]] refers to the reconciliation of Keynesian economics with [[neoclassical economics]], stating that Keynesianism is correct in the [[short run]] but qualified by neoclassical-like considerations in the intermediate and [[long run]].<ref name="Blanchard2008">[[Olivier J. Blanchard|Blanchard, Olivier Jean]] ([1987] 2008), "neoclassical synthesis," ''The New Palgrave Dictionary of Economics'', 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_N000041&q=neoclassical&topicid=&result_number=2 Abstract.]</ref>
 
[[New classical macroeconomics]], as distinct from the Keynesian view of the business cycle, posits [[market clearing]] with [[imperfect information]]. It includes Friedman's [[permanent income hypothesis]] on consumption and "[[rational expectations]]" theory,<ref>[http://www.economics.harvard.edu/files/faculty/40_Macroeconomist_as_Scientist.pdf The Macroeconomist as Scientist and Engineer], Gregory Mankiw, Harvard University, May 2006.</ref> lead by [[Robert Lucas, Jr.|Robert Lucas]], and [[real business cycle theory]].<ref>[[Stanley Fischer|Fischer, Stanley]] (2008). "new classical macroeconomics," ''The New Palgrave Dictionary of Economics'', 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_N000056&edition=current&q= Contents].</ref>
 
In contrast, the [[New Keynesian economics|new Keynesian]] approach retains the rational expectations assumption, however it assumes a variety of [[market failures]]. In particular, New Keynesians assume prices and wages are "[[Sticky (economics)|sticky]]", which means they do not adjust instantaneously to changes in economic conditions.<ref name="Dixon2008">Dixon, Huw David (2008). "new Keynesian macroeconomics," ''The New Palgrave Dictionary of Economics'', 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_N000166&edition=current&q= Abstract].</ref>
 
Thus, the new classicals assume that prices and wages adjust automatically to attain full employment, whereas the new Keynesians see full employment as being automatically achieved only in the long run, and hence government and central-bank policies are needed because the "long run" may be very long.
 
=== Unemployment ===
{{Main|Unemployment}}
[[File:US employment 1995-2012.png|thumb|450px|The percentage of the [[Unemployment in the United States|US population employed]], 1995–2012.]]
The amount of unemployment in an economy is measured by the unemployment rate, the percentage of workers without jobs in the labour force. The labour force only includes workers actively looking for jobs. People who are retired, pursuing education, or [[discouraged worker|discouraged from seeking work]] by a lack of job prospects are excluded from the labor force. Unemployment can be generally broken down into several types that are related to different causes.<ref name="Dwivedi">Dwivedi, 443.</ref>
 
Classical models of unemployment occurs when wages are too high for employers to be willing to hire more workers. Wages may be too high because of minimum wage laws or union activity. Consistent with classical unemployment, frictional unemployment occurs when appropriate job vacancies exist for a worker, but the length of time needed to search for and find the job leads to a period of unemployment.<ref name="Dwivedi" />
 
[[Structural unemployment]] covers a variety of possible causes of unemployment including a mismatch between workers' skills and the skills required for open jobs.<ref>Freeman (2008). http://www.dictionaryofeconomics.com/article?id=pde2008_S000311.</ref> Large amounts of structural unemployment can occur when an economy is transitioning industries and workers find their previous set of skills are no longer in demand. Structural unemployment is similar to frictional unemployment since both reflect the problem of matching workers with job vacancies, but structural unemployment covers the time needed to acquire new skills not just the short term search process.<ref>Dwivedi, 444-445.</ref>
 
While some types of unemployment may occur regardless of the condition of the economy, cyclical unemployment occurs when growth stagnates. [[Okun's law]] represents the empirical relationship between unemployment and economic growth.<ref>Dwivedi, 445-446.</ref> The original version of Okun's law states that a 3% increase in output would lead to a 1% decrease in unemployment.<ref>Neely, Christopher J. "Okun's Law: Output and Unemployment. ''Economic Synopses''. Number 4. 2010. http://research.stlouisfed.org/publications/es/10/ES1004.pdf.</ref>
 
===Inflation and monetary policy===
{{Main|Inflation|Monetary policy}}
{{See also|Money|Quantity theory of money|Monetary policy|History of money}}
 
[[Money]] is a ''means of final payment'' for goods in most [[price system]] economies and the [[unit of account]] in which prices are typically stated. A very apt statement by Professor Walker, a well-known economist is that, " Money is what money does." Money has a general acceptability, a relative consistency in value, divisibility, durability, portability, elastic in supply and survives with mass public confidence. It includes currency held by the nonbank public and checkable deposits. It has been described as a social convention, like language, useful to one largely because it is useful to others.
 
As a [[medium of exchange]], money facilitates trade. It is essentially a measure of value and more importantly, a store of value being a basis for credit creation. Its economic function can be contrasted with [[barter]] (non-monetary exchange). Given a diverse array of produced goods and specialized producers, barter may entail a hard-to-locate [[double coincidence of wants]] as to what is exchanged, say apples and a book. Money can reduce the [[transaction cost]] of exchange because of its ready acceptability. Then it is less costly for the seller to accept money in exchange, rather than what the buyer produces.<ref>[[James Tobin|Tobin, James]] (1992). "Money" (Money as a Social Institution and Public Good), ''The New Palgrave Dictionary of Finance and Money'', v. 2, pp. 770–71.</ref>
 
At the level of an [[economy]], [[quantity theory of money|theory]] and evidence are consistent with a [[positive relationship]] running from the total [[money supply]] to the [[nominal value]] of total output and to the general [[price level]]. For this reason, management of the [[money supply]] is a key aspect of [[monetary policy]].<ref>• [[Milton Friedman]] (1987). "quantity theory of money", ''The New Palgrave: A Dictionary of Economics'', v. 4, pp. 15–19.<br />&nbsp;&nbsp; • Samuelson, Paul A., and William D. Nordhaus (2004). ''Economics'', ch. 2, "Money: The Lubroicant of Exchange" section, ch. 33, Fig. 33–3.</ref>
 
===Fiscal policy===
{{Main|Fiscal policy|Government spending}}
 
Governments implement fiscal policy by adjusting spending and taxation policies to alter aggregate demand. When aggregate demand falls below the potential output of the economy, there is an [[output gap]] where some productive capacity is left unemployed. Governments increase spending and cut taxes to boost aggregate demand. Resources that have been idled can be used by the government.
 
For example, unemployed home builders can be hired to expand highways. Tax cuts allow consumers to increase their spending, which boosts aggregate demand. Both tax cuts and spending have [[Fiscal multiplier|multiplier effects]] where the initial increase in demand from the policy percolates through the economy and generates additional economic activity.
 
The effects of fiscal policy can be limited by [[Crowding out (economics)|crowding out]]. When there is no output gap, the economy is producing at full capacity and there are no excess productive resources. If the government increases spending in this situation, the government use resources that otherwise would have been used by the private sector, so there is no increase in overall output. Some economists think that crowding out is always an issue while others do not think it is a major issue when output is depressed.
 
Skeptics of fiscal policy also make the argument of [[Ricardian equivalence]]. They argue that an increase in debt will have to be paid for with future tax increases, which will cause people to reduce their consumption and save money to pay for the future tax increase. Under Ricardian equivalence, any boost in demand from fiscal policy will be offset by the increased savings rate intended to pay for future higher taxes.
 
==International economics==
{{Main|International economics|Economic system}}
[[File:Gdpercapita.PNG|thumb|450px|A world map showing [[List of countries by GDP (PPP) per capita|GDP (PPP) per capita]], 2011.|alt=A world map with countries colored, 2011.]]
International trade studies determinants of goods-and-services flows across international boundaries. It also concerns the size and distribution of [[gains from trade]]. Policy applications include estimating the effects of changing [[tariff]] rates and trade quotas. [[International finance]] is a macroeconomic field which examines the flow of [[Capital (economics)|capital]] across international borders, and the effects of these movements on [[exchange rate]]s. Increased trade in goods, services and capital between countries is a major effect of contemporary [[globalization]].<ref>• Anderson, James E. (2008). "international trade theory", ''[[The New Palgrave Dictionary of Economics, 2nd Edition]].[http://www.dictionaryofeconomics.com/article?id=pde2008_I000263&q=international%20economics&topicid=&result_number=14 Abstract.]<br />&nbsp;&nbsp; • Venables, A. (2001), "international trade: economic integration", ''[[International Encyclopedia of the Social & Behavioral Sciences]]'', pp. 7843–7848. {{DOI|10.1016/B0-08-043076-7/02259-2}}<br />&nbsp;&nbsp; • Obstfeld, Maurice (2008). "international finance", ''The New Palgrave Dictionary of Economics, 2nd Edition''. [http://www.dictionaryofeconomics.com/article?id=pde2008_I000169&q=international%20finance&topicid=&result_number=1 Abstract.]</ref>
 
The distinct field of ''[[development economics]]'' examines economic aspects of the [[economic development]] process in relatively [[developing countries|low-income countries]] focusing on [[structural change]], [[poverty]], and [[economic growth]]. Approaches in development economics frequently incorporate social and political factors.<ref>• Bell, Clive (1987). "development economics", ''[[The New Palgrave: A Dictionary of Economics]]'', v. 1, pp. 818–26.<br />&nbsp;&nbsp; • Blaug, Mark (2007). "The Social Sciences: Economics", Growth and development, ''The New Encyclopædia Britannica'', v. 27, p. 351. Chicago.</ref>
 
Economic systems is the [[JEL classification codes#Economic systems JEL: P Subcategories|branch]] of economics that studies the methods and [[institutions]] by which societies determine the ownership, direction, and allocation of economic resources. An ''economic system'' of a society is the unit of analysis.
 
Among contemporary systems at different ends of the organizational spectrum are [[Planned economy|socialist systems]] and [[Capitalism|capitalist systems]], in which most production occurs in respectively state-run and private enterprises. In between are [[mixed economies]]. A common element is the interaction of economic and political influences, broadly described as [[Political economy#Current approaches|political economy]]. ''[[Comparative economic systems]]'' studies the relative performance and behavior of different economies or systems.<ref>• [[Robert L. Heilbroner|Heilbroner, Robert L.]] and Peter J. Boettke (2007). "Economic Systems", ''The New Encyclopædia Britannica'', v. 17, pp. 908–15.<br />&nbsp;&nbsp; • NA (2007). "economic system", ''Encyclopædia Britannica online'' Concise Encyclopedia [http://www.britannica.com/ebc/article-9363397 entry.]{{dead link|date=January 2011}}</ref>
 
==Gross Domestic Product (GDP) or Economic Growth==
 
Gross Domestic product means the total value of goods produced and services provided in a country in a year. GDP is customarily reported on annual basis.   
<blockquote><math>GDP = C + I + G + \left (X - M \right ) </math></blockquote>
 
==Practice==
{{Main|Economic methodology|Mathematical economics|Schools of economics}}
Contemporary economics uses mathematics. Economists draw on the tools of [[calculus]], [[linear algebra]], [[statistics]], [[game theory]], and [[computer science]].<ref>[[Gérard Debreu|Debreu, Gérard]] (1987). "mathematical economics", ''The [[New Palgrave: A Dictionary of Economics]]'', v. 3, pp. 401–03.</ref> Professional economists are expected to be familiar with these tools, while a minority specialize in econometrics and mathematical methods.
 
===Theory===
Mainstream economic theory relies upon [[wikt:a priori|a priori]] quantitative [[model (economics)|economic models]], which employ a variety of concepts. Theory typically proceeds with an assumption of ''[[ceteris paribus]]'', which means holding constant explanatory variables other than the one under consideration. When creating theories, the objective is to find ones which are at least as simple in information requirements, more precise in predictions, and more fruitful in generating additional research than prior theories.<ref>[[Milton Friedman|Friedman Milton]] (1953). "[[Essays in Positive Economics#The Methodology of Positive Economics|The Methodology of Positive Economics]]", ''Essays in Positive Economics'', University of Chicago Press, p. 10.</ref>
 
In [[microeconomics]], principal concepts include [[supply and demand]], [[marginalism]], [[rational choice theory]], [[opportunity cost]], [[budget constraint]]s, [[utility]], and the [[theory of the firm]].<ref>Boland, Lawrence A. (1987). "methodology", ''[[The New Palgrave: A Dictionary of Economics]]'', v. 3, pp. 455–58.</ref><ref name="Dissension">{{cite journal | author=Frey, Bruno S., Werner W. Pommerehne, Friedrich Schneider, and Guy Gilbert. | title=Consensus and Dissension Among Economists: An Empirical Inquiry| journal=American Economic Review| year=1984| volume=74| issue=5|pages= p [http://links.jstor.org/sici?sici=0002–8282%28198412%2974%3A5%3C986%3ACADAEA%3E2.0.CO%3B2–E&size=LARGE p. 986–994] }} Accessed on 2007-03-17.</ref> Early [[macroeconomic]] models focused on modeling the relationships between aggregate variables, but as the relationships appeared to change over time macroeconomists, including [[new Keynesian]]s, reformulated their models in [[microfoundations]].<ref name="Dixon2008"/>
 
The aforementioned microeconomic concepts play a major part in macroeconomic models&nbsp;– for instance, in [[monetary theory]], the [[quantity theory of money]] predicts that increases in the [[money supply]] increase [[inflation]], and inflation is assumed to be influenced by [[rational expectations]]. In [[development economics]], slower growth in developed nations has been sometimes predicted because of the declining marginal returns of investment and capital, and this has been observed in the [[Four Asian Tigers]]. Sometimes an economic hypothesis is only ''[[qualitative economics|qualitative]]'', not ''quantitative''.<ref>Quirk, James (1987). "qualitative economics", ''The New Palgrave: A Dictionary of Economics'', v. 4, pp. 1–3.</ref>
 
Expositions of economic reasoning often use two-dimensional graphs to illustrate theoretical relationships. At a higher level of generality, [[Paul Samuelson]]'s treatise ''[[Foundations of Economic Analysis]]'' (1947) used mathematical methods to represent the theory, particularly as to maximizing behavioral relations of agents reaching equilibrium. The book focused on examining the class of statements called ''operationally meaningful theorems'' in economics, which are [[theorem]]s that can conceivably be refuted by empirical data.<ref name="Foundations">{{cite book | title=[[Foundations of Economic Analysis]], Enlarged Edition| last=Samuelson| first=Paul A.| authorlink=Paul Samuelson| date=1947, 1983| page=4| publisher=Harvard University Press| location=Boston| isbn=978-0-674-31301-9}}</ref>
 
===Empirical investigation===
{{Main|Econometrics|Experimental economics}}
Economic theories are frequently tested [[empirical]]ly, largely through the use of [[econometrics]] using [[economic data]].<ref>Hashem, M. Pesaren (1987). "econometrics", [[The New Palgrave: A Dictionary of Economics]], v. 2, p. 8.</ref> The controlled experiments common to the [[physical science]]s are difficult and uncommon in economics,<ref>Probability, econometrics and truth: the methodology of econometrics By [[Hugo A. Keuzenkamp]] Published by Cambridge University Press, 2000 ISBN 0-521-55359-8, ISBN 978-0-521-55359-9 312 pages, page 13: "...in economics, controlled experiments are rare and reproducible controlled experiments even more so..."</ref> and instead broad data is [[observational study|observationally studied]]; this type of testing is typically regarded as less rigorous than controlled experimentation, and the conclusions typically more tentative. However, the field of [[experimental economics]] is growing, and increasing use is being made of [[natural experiments]].
 
[[Statistics|Statistical methods]] such as [[regression analysis]] are common. Practitioners use such methods to estimate the size, economic significance, and [[statistical significance]] ("signal strength") of the hypothesized relation(s) and to adjust for noise from other variables. By such means, a hypothesis may gain acceptance, although in a probabilistic, rather than certain, sense. Acceptance is dependent upon the [[falsifiability|falsifiable]] hypothesis surviving tests. Use of commonly accepted methods need not produce a final conclusion or even a consensus on a particular question, given different tests, [[data set]]s, and prior beliefs.
 
Criticism based on professional standards and non-[[Replication (statistics)|replicability]] of results serve as further checks against bias, errors, and over-generalization,<ref name="Dissension"/><ref>Blaug, Mark (2007). "The Social Sciences: Economics" ( Methods of inference and Testing theories), ''The New Encyclopædia Britannica'', v. 27, p. 347.</ref> although much economic research has been accused of being non-replicable, and prestigious journals have been accused of not facilitating replication through the provision of the code and data.<ref name=McCullough2007>{{cite journal | author = McCullough, B.D. | year = 2007 | title = Got Replicability? The Journal of Money, Banking and Credit Archive| journal = Econ Journal Watch | volume = 4 | issue = 3 | pages = 326–337 | url = http://www.econjournalwatch.org/pdf/McCulloughAbstractSeptember2007.pdf | accessdate = 2008-06-07|format=PDF}}</ref> Like theories, uses of test statistics are themselves open to critical analysis,<ref>• Kennedy, Peter (2003). ''A Guide to Econometrics'', 5th ed., "21.2 The Ten Commandments of Applied Econometrics", pp. 390–96 [http://books.google.com/books?hl=en&lr=&id=B8I5SP69e4kC&oi=fnd&pg=PR11&ots=w8xiZdkYWb&sig=_YKfXmJbK4-F3H4zsMl8N-U5BGo#PRA1-PA390,M1 (excerpts).]<br />&nbsp;&nbsp; • McCloskey, Deirdre N. and Stephen T. Ziliak (1996). "The Standard Error of Regressions", ''Journal of Economic Literature'', 34(1), pp. [http://www.deirdremccloskey.com/docs/pdf/Article_189.pdf 97–114.]
<br />&nbsp;&nbsp; • Hoover, Kevin D., and Mark V. Siegler (2008). "Sound and Fury: McCloskey and Significance Testing in Economics", ''Journal of Economic Methodology'', 15(1), pp. 1–37 [http://129.3.20.41/econ-wp/em/papers/0511/0511018.pdf (2005 prepubication version).] Reply of McCloskey and Ziliak and rejoinder, pp. 39–68.</ref> although critical commentary on papers in economics in prestigious journals such as the ''[[American Economic Review]]'' has declined precipitously in the past 40 years. This has been attributed to journals' incentives to maximize citations in order to rank higher on the Social Science Citation Index (SSCI).<ref name=Whaples2006>{{cite journal | author = Whaples, R. | year = 2006
| title = The Costs of Critical Commentary in Economics Journals | journal = Econ Journal Watch | volume = 3 | issue = 2 | pages = 275–282 | url = http://ideas.repec.org/a/ejw/volone/2006275-282.html | accessdate = 2008-06-10
|archiveurl = https://web.archive.org/web/20080129025046/http://ideas.repec.org/a/ejw/volone/2006275-282.html |archivedate = 2008-01-29}}</ref>
 
In applied economics, [[input-output model]]s employing [[linear programming]] methods are quite common. Large amounts of data are run through computer programs to analyze the impact of certain policies; [[Minnesota IMPLAN Group|IMPLAN]] is one well-known example.
 
[[Experimental economics]] has promoted the use of [[Scientific control|scientifically controlled]] [[experiment]]s. This has reduced long-noted distinction of economics from [[natural science]]s allowed direct tests of what were previously taken as axioms.<ref>• [Bastable, C.F.] (1925). "experimental methods in economics", ''Palgrave's Dictionary of Economics'', reprinted in ''The New Palgrave: A Dictionary of Economics'' (1987, v. 2, p. 241.<br />&nbsp;&nbsp; • [[Vernon L. Smith|Smith, Vernon L.]] (1987), "experimental methods in economics", ii. ''The New Palgrave: A Dictionary of Economics'', v. 2, pp. 241–42.</ref> In some cases these have found that the axioms are not entirely correct; for example, the [[ultimatum game]] has revealed 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 bias]]es and [[heuristics in judgment and decision making|heuristics]]. Similar empirical testing occurs in [[neuroeconomics]]. Another example is the assumption of narrowly selfish preferences versus a model that tests for selfish, altruistic, and cooperative preferences.<ref>• Fehr, Ernst, and Urs Fischbacher (2003). "The Nature of Human Altruism", ''Nature'' 425, October 23, [http://www.kabbalah.info/forums/arosa/engmaterials/Altruism/Ernst_Fehr___Urs_Fischbacher__The_Nature_of_Human_Altruism.pdf pp. 785–791.]<br />&nbsp;&nbsp; • Sigmund, Karl, Ernst Fehr, and Martin A. Nowak (2002),"The Economics of Fair Play", ''Scientific American'', 286(1) January, [http://www.scribd.com/word/full/2188440?access_key=key-2ejknqyx744p0e6mcc21 pp. 82–87.]</ref> These techniques have led some to argue that economics is a "genuine science."<ref name="Imperialism">{{cite journal| author=Lazear, Edward P.| title=Economic Imperialism| journal=American Economic Review| year=2000| volume=115| issue=1|pages= p [http://links.jstor.org/sici?sici=0033–5533%28200002%29115%3A1%3C99%3AEI%3E2.0.CO%3B2–W&size=LARGE&origin=JSTOR–enlargePage p. 99–994]| unused_data=Quarterly Journal of Economics }}</ref>
 
===Profession===
{{Main|Economist}}
The professionalization of economics, reflected in the growth of graduate programs on the subject, has been described as "the main change in economics since around 1900".<ref>[[Orley Ashenfelter|O. Ashenfelter]] (2001), "Economics: Overview", The Profession of Economics, ''[[International Encyclopedia of the Social & Behavioral Sciences]]'', v. 6, p. 4159.</ref> Most major [[universities]] and many colleges have a major, school, or department in which [[academic degrees]] are awarded in the subject, whether in the [[liberal arts]], business, or for professional study.
 
In the private sector, professional economists are employed as consultants and in industry, including [[banking]] and [[finance]]. Economists also work for various government departments and agencies, for example, the national [[Treasury]], [[Central Bank]] or [[Bureau of Statistics]].
 
The [[Nobel Memorial Prize in Economic Sciences]] (commonly known as the Nobel Prize in Economics) is a prize awarded to economists each year for outstanding intellectual contributions in the field.
 
==Related subjects==
{{Main|Law and Economics|Natural resource economics|Philosophy and economics|Political economy}}
Economics is one [[social science]] among several and has fields bordering on other areas, including [[economic geography]], [[economic history]], [[public choice]], [[energy economics]], [[JEL classification codes#Other special topics (economics) JEL: Z Subcategories|cultural economics]], [[family economics]] and [[institutional economics]].
 
Law and economics, or economic analysis of law, is an approach to legal theory that applies methods of economics to law. It includes the use of economic concepts to explain the effects of legal rules, to assess which legal rules are [[economic efficiency|economically efficient]], and to predict what the legal rules will be.<ref>• [[David D. Friedman|Friedman, David]] (1987). "law and economics", ''The New Palgrave: A Dictionary of Economics'', v. 3, p. 144.<br />&nbsp;&nbsp; • [[Richard Posner|Posner, Richard A.]] (1972). ''Economic Analysis of Law''. Aspen, 7th ed., 2007) ISBN 978-0-7355-6354-4.</ref> A seminal article by [[Ronald Coase]] published in 1961 suggested that well-defined property rights could overcome the problems of [[externalities]].<ref>[[Ronald Coase|Coase, Ronald]], "The Problem of Social Cost", ''[[The Journal of Law and Economics]]'' Vol.3, No.1 (1960). This issue was actually published in 1961.</ref>
 
[[Political economy]] is the interdisciplinary study that combines economics, law, and [[political science]] in explaining how political institutions, the political environment, and the economic system ([[capitalism|capitalist]], [[socialist]], mixed) influence each other. It studies questions such as how [[monopoly]], [[rent-seeking]] behavior, and [[externalities]] should impact government policy.<ref>• Groenewegen, Peter (2008). "'political economy'", ''The New Palgrave Dictionary of Economics''.<br />&nbsp;&nbsp; • [[Anne Osborn Krueger|Krueger, Anne O.]] (1974)."The Political Economy of the Rent-Seeking Society", ''American Economic Review'', 64(3), pp.291–303</ref> [[Historian]]s have employed ''political economy'' to explore the ways in the past that persons and groups with common economic interests have used politics to effect changes beneficial to their interests.<ref>McCoy, Drew R. "The Elusive Republic: Political Ecocomy in Jeffersonian America", Chapel Hill, University of North Carolina, 1980.</ref>
 
[[Energy economics]] is a broad [[science|scientific]] subject area which includes topics related to [[energy supply]] and [[energy demand]]. [[Georgescu-Roegen]] reintroduced the concept of [[entropy]] in relation to economics and energy from [[thermodynamics]], as distinguished from what he viewed as the mechanistic foundation of neoclassical economics drawn from Newtonian physics. His work contributed significantly to [[thermoeconomics]] and to [[ecological economics]]. He also did foundational work which later developed into [[evolutionary economics]].<ref>• Cleveland, C. and Ruth, M. 1997. When, where, and by how much do biophysical limits constrain the economic process? A survey of Georgescu-Roegen's contribution to ecological economics. ''Ecological Economics'' 22: 203–223.<br />&nbsp;&nbsp; • Daly, H. 1995. "On Nicholas Georgescu-Roegen's Contributions to Economics: An Obituary essay." ''Ecological Economics'' 13: 149–54.<br />&nbsp;&nbsp; • Mayumi, K. 1995. Nicholas Georgescu-Roegen (1906–1994): an admirable epistemologist. ''Structural Change and Economic Dynamics'' 6: 115–120.<br />&nbsp;&nbsp; • Mayumi, K. and Gowdy, J. M. (eds.) 1999. ''Bioeconomics and Sustainability: Essays in Honor of Nicholas Georgescu-Roegen''. Cheltenham: Edward Elgar.<br />&nbsp;&nbsp; • Mayumi, K. 2001. ''The Origins of Ecological Economics: The Bioeconomics of Georgescu-Roegen''. London: Routledge.</ref>
 
The [[sociological]] subfield of [[economic sociology]] arose, primarily through the work of [[Émile Durkheim]], [[Max Weber]] and [[Georg Simmel]], as an approach to analysing the effects of economic phenomena in relation to the overarching social paradigm (i.e. [[modernity]]).<ref>{{cite web|url=http://press.princeton.edu/chapters/s7525.html |title=Principles of Economic Sociology by Richard Swedberg – An extract |accessdate=2009-12-02}}</ref> Classic works include [[Max Weber]]'s ''[[The Protestant Ethic and the Spirit of Capitalism]]'' (1905) and [[Georg Simmel]]'s ''[[The Philosophy of Money]]'' (1900). More recently, the works of [[Mark Granovetter]], [[Peter Hedstrom]] and [[Richard Swedberg]] have been influential in this field.
 
==History==
{{Main|History of economic thought|History of macroeconomic thought}}
Economic writings date from earlier [[Mesopotamia]]n, [[ancient Greece|Greek]], [[Ancient Rome|Roman]], [[History of India|Indian subcontinent]], [[China|Chinese]], [[Persian Empire|Persian]], and [[Arab world|Arab]] civilizations. Notable writers from antiquity through to the 14th century include [[Aristotle]], [[Oeconomicus|Xenophon]], [[Chanakya]] (also known as Kautilya), [[Qin Shi Huang]], [[Thomas Aquinas]], and [[Ibn Khaldun]]. The works of Aristotle had a profound influence on Aquinas, who in turn influenced the [[Scholasticism#Late Scholasticism|late scholastics]] of the 14th to 17th centuries.<ref>"''[http://books.google.com/books?id=uY3TITTPxTIC&pg=PA3&dq&hl=en#v=onepage&q=&f=false The history of economic thought: a reader]''". Steven G. Medema, Warren J. Samuels (2003). [[Routledge]]. p.3. ISBN 0-415-20550-6</ref> [[Joseph Schumpeter]] described the latter as "coming nearer than any other group to being the 'founders' of scientific economics" as to [[Monetary economics|monetary]], interest, and [[microeconomics|value]] theory within a [[natural law|natural-law]] perspective.<ref>Schumpeter, Joseph A. (1954). ''History of Economic Analysis'', pp. 97–115. Oxford.</ref>{{failed verification|see talk|date=November 2011}}
 
[[File:Lorrain.seaport.jpg|thumb|250px|A 1638 painting of a French seaport during the heyday of [[mercantilism]].|alt=A seaport with a ship arriving]]
 
Two groups, later called "mercantilists" and "physiocrats", more directly influenced the subsequent development of the subject. Both groups were associated with the rise of [[economic nationalism]] and [[History of capitalism#Merchant capitalism and mercantilism|modern capitalism]] in Europe. [[Mercantilism]] was an economic doctrine that flourished from the 16th to 18th century in a prolific pamphlet literature, whether of merchants or statesmen. It held that a nation's wealth depended on its accumulation of gold and silver. Nations without access to mines could obtain gold and silver from trade only by selling goods abroad and restricting imports other than of gold and silver. The doctrine called for importing cheap raw materials to be used in manufacturing goods, which could be exported, and for state regulation to impose protective tariffs on foreign manufactured goods and prohibit manufacturing in the colonies.<ref>• NA (2007). "mercantilism", {{cite book | title=The New Encyclopædia Britannica| date=| pages=v. 8, p. 26| publisher=| id=}}<br />&nbsp;&nbsp; • Blaug, Mark (2007). "The Social Sciences: Economics". ''The New Encyclopædia Britannica'', v. 27, p. 343.</ref>
 
[[Physiocrats]], a group of 18th century French thinkers and writers, developed the idea of the economy as a [[circular flow]] of income and output. Physiocrats believed that only agricultural production generated a clear surplus over cost, so that agriculture was the basis of all wealth. Thus, they opposed the mercantilist policy of promoting manufacturing and trade at the expense of agriculture, including import tariffs. Physiocrats advocated replacing administratively costly tax collections with a single tax on income of land owners. In reaction against copious mercantilist trade regulations, the physiocrats advocated a policy of [[laissez-faire]], which called for minimal government intervention in the economy.<ref>NA (2007). "physiocrat", {{cite book | title=The New Encyclopædia Britannica| date=| pages=v. 9, p. 414.| publisher=| id=}}<br />&nbsp;&nbsp; • Blaug, Mark (1997, 5th ed.) ''Economic Theory in Retrospect'', pp, 24–29, 82–84. Cambridge.</ref>
 
Modern economic analysis is customarily said to have begun with [[Adam Smith]] (1723–1790).<ref>E. K. Hunt (2002). [http://books.google.com/books?id=duYaugxYHdIC&pg=PA3&dq&hl=en#v=onepage&q=&f=false ''History of Economic Thought: A Critical Perspective''], p.3. ISBN 0-7656-0606-2</ref> Smith was harshly critical of the mercantilists but described the physiocratic system "with all its imperfections" as "perhaps the purest approximation to the truth that has yet been published" on the subject.<ref>"''[http://books.google.com/books?id=QV2OJqbt45oC&pg=PA36&dq&hl=en#v=onepage&q=&f=false The making of modern economics: the lives and ideas of the great thinkers]''". Mark Skousen (2001). p.36. ISBN 0-7656-0479-5</ref>
 
===Classical political economy===
{{Main|Classical economics}}
[[File:AdamSmith.jpg|thumb|upright|The publication of [[Adam Smith]]'s ''[[The Wealth of Nations]]'' in 1776 is considered to be the first formalisation of economic thought.|alt=A man facing the right]]
 
The publication of [[Adam Smith]]'s ''[[The Wealth of Nations]]'' in 1776, has been described as "the effective birth of economics as a separate discipline."<ref name="Blaug">[[Mark Blaug|Blaug, Mark]] (2007). "The Social Sciences: Economics". ''The New Encyclopædia Britannica'', v. 27, p. 343.</ref> The book identified land, labor, and capital as the three factors of production and the major contributors to a nation's wealth, as distinct from the Physiocratic idea that only agriculture was productive.
 
Smith discusses potential benefits of specialization by [[division of labour]], including increased [[labour productivity]] and [[gains from trade]], whether between town and country or across countries.<ref>[[Alan Deardorff|Deardorff, Alan V.]], 2006. ''Glossary of International Economics'', [http://www-personal.umich.edu/~alandear/glossary/d.html#DivisionOfLabor Division of labor].</ref> His "theorem" that "the division of labor is limited by the extent of the market" has been described as the "core of a [[Theory of the firm|theory of the functions of firm]] and [[industrial organization|industry]]" and a "fundamental principle of economic organization."<ref>[[George J. Stigler|Stigler, George J.]] (1951). "The Division of Labor Is Limited by the Extent of the Market." ''Journal of Political Economy'', 59(3), pp. [http://www.sfu.ca/~allen/stigler.pdf 185–193.]</ref> To Smith has also been ascribed "the most important substantive proposition in all of economics" and foundation of [[Allocation of resources|resource-allocation]] theory – that, under [[Competition (economics)|competition]], resource owners (of labour, land, and capital) seek their most profitable uses, resulting in an equal rate of return for all uses in [[Economic equilibrium|equilibrium]] (adjusted for apparent differences arising from such factors as training and unemployment).<ref>Stigler, George J. (1976). "The Successes and Failures of Professor Smith", ''Journal of Political Economy'', 84(6), p. 1202 (pp. [http://www.jstor.org/pss/1831274 1199]-1213). Also published as Selected Papers, No. 50 [http://testwww.chicagobooth.edu/research/selectedpapers/sp50c.pdf (PDF)], Graduate School of Business, University of Chicago.</ref>
 
In an argument that includes "one of the most famous passages in all economics,"<ref>Samuelson, Paul A., and William D. Nordhaus (2004). ''Economics''. 18th ed., McGraw-Hill, ch. 2, "Markets and Government in a Modern Economy", The Invisible Hand, p. 30.</ref> Smith represents every individual as trying to employ any capital they might command for their own advantage, not that of the society,<ref>'Capital' in Smith's usage includes [[fixed capital]] and [[circulating capital]]. The latter includes wages and labour maintenance, money, and inputs from land, mines, and fisheries associated with production per ''The Wealth of Nations'', [http://www.econlib.org/cgi-bin/searchbooks.pl?searchtype=BookSearchPara&pgct=1&sortby=R&searchfield=F&id=10&query=%22circulating+capital%22+wages&x=0&y=0&andor=and Bk. II: ch. 1, 2, and 5].</ref> and for the sake of profit, which is necessary at some level for employing capital in domestic industry, and positively related to the value of produce.<ref>Smith, Adam (1776). ''The Wealth of Nations'', Bk. IV: Of Systems of political Œconomy, ch. II, "Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home", [http://www.econlib.org/library/Smith/smWN13.html#IV.2.3 para. 3-5 and 8-9].</ref> In this:
:He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.<ref>Smith, Adam (1776). ''The Wealth of Nations'', Bk. IV: Of Systems of political Œconomy, ch. II, "Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home", [http://www.econlib.org/library/Smith/smWN13.html#IV.2.9 para. 9].</ref>
 
Economists have linked Smith's invisible-hand concept to his concern for the common man and woman through [[economic growth]] and [[economic development|development]],<ref>Smith, Adam (1776). ''The Wealth of Nations'', [[The Wealth of Nations|Bk. I-IV]] and Bk. I, ch. 1, [http://www.econlib.org/cgi-bin/searchbooks.pl?searchtype=BookSearchPara&pgct=1&sortby=R&searchfield=F&id=10&query=%22in+a+well-governed+society%22+%22universal+opulence%22+%22extends+itself+to+the+lowest+ranks+of+the+people%22&andor=and para. 10].</ref> enabling higher levels of consumption, which Smith describes as "the sole end and purpose of all production."<ref>• Smith, Adam (1776). ''The Wealth of Nations'', Bk. IV, ch. 8, [http://www.econlib.org/cgi-bin/searchbooks.pl?searchtype=BookSearchPara&pgct=1&sortby=R&searchfield=F&id=10&query=%22the+sole+end+and+purpose+of+all+production%22&x=0&y=0&andor=and para. 49].</ref><ref>• Samuelson, Paul A., and William D. Nordhaus (2004). ''Economics''. 18th ed., McGraw-Hill, ch. 2, "Markets and Government in a Modern Economy", The Invisible Hand, p. 30.<br />&nbsp;&nbsp; • Blaug, Mark (2008). "invisible hand", ''The New Palgrave Dictionary of Economics'', 2nd Edition, v. 4, pp.&nbsp;564–66. [http://www.dictionaryofeconomics.com/article?id=pde2008_I000220&edition=current&q=Invisible%20hand&topicid=&result_number=1 Abstract].</ref>
He embeds the "invisible hand" in a framework that includes limiting restrictions on competition and foreign trade by government and industry in the same chapter<ref>Smith, Adam (1776). ''The Wealth of Nations'', Bk. IV: Of Systems of political Œconomy, [http://www.econlib.org/library/Smith/smWN13.html#B.IV ch. II], "Of Restraints upon the Importation from Foreign Countries."</ref> and elsewhere regulation of banking and the interest rate,<ref>Smith, Adam (1776). ''The Wealth of Nations'', Bk. II, ch. II, [http://www.econlib.org/cgi-bin/searchbooks.pl?searchtype=BookSearchPara&id=smWN&query=%22regulations+of+the+banking+trade%22 para. 94] and Bk. II, ch. IV, [http://www.econlib.org/cgi-bin/searchbooks.pl?searchtype=BookSearchPara&pgct=1&sortby=R&searchfield=F&id=10&query=%22sober+people%22+%22rate+of+interest%22&x=16&y=11&andor=and para. 15].</ref> provision of a "natural system of liberty" — national defence, an [[egalitarian]] justice and legal system, and certain institutions and public works with general benefits to the whole society that might otherwise be unprofitable to produce, such as education<ref>Smith, Adam (1776). ''The Wealth of Nations'', Bk. V, ch. I, [http://www.econlib.org/library/Smith/smWN20.html#V.1.180 para. 180-85] and [http://www.econlib.org/library/Smith/smWN20.html#V.1.239 239 and 240].</ref> and roads, canals, and the like.<ref>• Smith, Adam (1776). ''The Wealth of Nations'', Bk. V, ch. I, [http://www.econlib.org/cgi-bin/searchbooks.pl?searchtype=BookSearchPara&id=smWN&query=contract+law+justice para. 64] and Bk. IV: Of Systems of political Œconomy, ch. IX, [http://www.econlib.org/cgi-bin/searchbooks.pl?searchtype=BookSearchPara&pgct=1&sortby=R&searchfield=F&id=10&query=%22system+of+natural+liberty%22&x=0&y=0&andor=and para. 51] and Bk. V: [http://www.econlib.org/library/Smith/smWN20.html#B.V, ch. 1], "Of the Expences of the Sovereign or Commonwealth", [http://www.econlib.org/cgi-bin/searchbooks.pl?searchtype=BookSearchPara&pgct=1&sortby=R&searchfield=F&id=10&query=roads%2C+bridges%2C+canals&x=15&y=12&andor=and para. 71 and 76], and [http://www.econlib.org/library/Smith/smWN20.html#V.1.239 239-40].</ref><ref>• Blaug, Mark (2007). "The Social Sciences: Economics", ''The New Encyclopædia Britannica'', v. 27, Analysis of the market, pp.&nbsp;343–44.<br />&nbsp;&nbsp; • _____ (1997). ''Economic Theory in Retrospect'', 5th ed., in ch. 2, sect. 19, "Adam Smith as an Economist, pp. [http://books.google.com/books?id=4nd6alor2goC&printsec=find&pg=PA56=gbs_atb#v=onepage&q&f=false 56–62.]<br />&nbsp;&nbsp; • Vaughn, Karen I. (1987), "invisible hand", ''The New Palgrave: A Dictionary of Economics'', v. 2, pp.&nbsp;997–99. [http://www.dictionaryofeconomics.com/search_results?q=Invisible+hand+metaphor+twice+&field=content&edition=archive&topicid= Link].<br />&nbsp;&nbsp; • Skinner, Andrew (2008). "Smith, Adam (1723–1790)", Policy, ''The New Palgrave Dictionary of Economics'', 2nd Edition, v. 7, pp.&nbsp;559–61. [http://www.dictionaryofeconomics.com/article?id=pde2008_S000154&edition=current&q=Adam%20Smith&topicid=&result_number=1 Abstract].<br />&nbsp;&nbsp; • [[Jacob Viner|Viner, Jacob]] (1927). "Adam Smith and Laissez Faire", sect. IV. Flaws in the Natural Order, pp.&nbsp;214–17, and V. The Functions of Government, ''Journal of Political Economy'', 35(2), pp.&nbsp;217–32 (pp. [http://www.jstor.org/pss/1823421 198]-232).</ref> An influential introductory textbook includes parallel discussion and this assessment: "Above all, it is Adam Smith's vision of a self-regulating [[invisible hand]] that is his enduring contribution to modern economics."<ref>Samuelson, Paul A., William D. Nordhaus (2004). ''Economics''. 18th ed., McGraw-Hill, ch. 2, "Markets and Government in a Modern Economy", Not Chaos, but Economic Order (and following, pp.&nbsp;26–29; The Invisible Hand (including discussion of [[market failure]] and [[public goods]]), pp.&nbsp;30–31.</ref>
 
The [[Reverend|Rev.]] [[Thomas Robert Malthus]] (1798) used the idea of diminishing returns to explain low living standards. [[Human population]], he argued, tended to increase geometrically, outstripping the production of food, which increased arithmetically. The force of a rapidly growing population against a limited amount of land meant diminishing returns to labour. The result, he claimed, was chronically low wages, which prevented the standard of living for most of the population from rising above the subsistence level.<ref>[Malthus, Thomas] (1798). ''[[An Essay on the Principle of Population]].''</ref>
 
Malthus also questioned the automatic tendency of a [[market economy]] to produce full employment. He blamed unemployment upon the economy's tendency to limit its spending by saving too much, a theme that lay forgotten until [[John Maynard Keynes]] revived it in the 1930s.
 
While Adam Smith emphasized the production of income, [[David Ricardo]] (1817) focused on the distribution of income among landowners, workers, and capitalists. Ricardo saw an inherent conflict between landowners on the one hand and labour and capital on the other. He posited that the growth of population and capital, pressing against a fixed supply of land, pushes up rents and holds down wages and profits. Ricardo was the first to state and prove the principle of [[comparative advantage]], according to which each country should specialize in producing and exporting goods in that it has a lower ''relative'' cost of production, rather relying only on its own production.<ref>David Ricardo, 1817. ''[[On the Principles of Political Economy and Taxation]]''.</ref> It has been termed a "fundamental analytical explanation" for [[gains from trade]].<ref>[[Ronald Findlay]], 2008. "comparative advantage", ''The New Palgrave Dictionary of Economics'', 2nd Edition, 1st paragraph. [http://www.dictionaryofeconomics.com/article?id=pde2008_C000254&edition=current&q=comparative%20advantage&topicid=&result_number=1 Abstract].</ref>
 
Coming at the end of the Classical tradition, [[John Stuart Mill]] (1848) parted company with the earlier classical economists on the inevitability of the distribution of income produced by the market system. Mill pointed to a distinct difference between the market's two roles: allocation of resources and distribution of income. The market might be efficient in allocating resources but not in distributing income, he wrote, making it necessary for society to intervene.<ref>Mill, John Stuart (1848, 1871, 7th ed.). ''[[Principles of Political Economy]]''.</ref>
 
Value theory was important in classical theory. Smith wrote that the "real price of every thing&nbsp;... is the toil and trouble of acquiring it" as influenced by its scarcity. Smith maintained that, with rent and profit, other costs besides wages also enter the price of a commodity.<ref>Smith, Adam (1776). [http://www.bartleby.com/10/105.html/ The Wealth of Nations], Bk. 1, Ch. 5, 6.</ref> Other classical economists presented variations on Smith, termed the '[[labour theory of value#The theory's development|labour theory of value]]'. Classical economics focused on the tendency of markets to move to long-run equilibrium.
 
===Marxism===
{{Main|Marxian economics}}
[[File:Karl Marx 001.jpg|upright|right|thumb|The Marxist school of economic thought comes from the work of German economist [[Karl Marx]].|alt=A man facing the viewer]]
 
Marxist (later, Marxian) economics descends from classical economics. It derives 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 [[labour theory of value]] and the [[theory of surplus value]] which, he believed, explained the exploitation of labour by capital.<ref name="Roemer">• [[John Roemer|Roemer, J.E.]] (1987). "Marxian value analysis". ''The New Palgrave: A Dictionary of Economics'', v. 3, 383.<br />&nbsp;&nbsp; • [[Ernest Mandel|Mandel, Ernest]] (1987). "Marx, Karl Heinrich", ''The New Palgrave: A Dictionary of Economicsv. 3, pp. 372, 376.</ref> The labour theory of value held that the value of an exchanged commodity was determined by the labour that went into its production and the theory of surplus value demonstrated how the workers only got paid a proportion of the value their work had created.<ref name="THOMAS FULLER">{{cite web|url=http://www.nytimes.com/2009/09/18/world/asia/18laos.html?pagewanted=all&_r=0|publisher=New York Times|author=THOMAS FULLER|title=Communism and Capitalism Are Mixing in Laos|date=September 17, 2009}}</ref> The U.S. Export-Import Bank defines a Marxist-Lenninist state as having a centrally [[planned economy]].<ref name="THOMAS FULLER"/> They are now rare, examples can still be seen in [[Economy of Cuba|Cuba]], [[Economy of North Korea|North Korea]] and [[Economy of Laos|Laos]].<ref>von Brabant, Jozef M. ''The Planned Economies and International Economic Organizations'', Cambridge University Press, 1991, p. 16</ref>{{update inline|date=August 2013}}
 
===Neoclassical economics===
{{Main|Neoclassical economics}}
A body of theory later termed "neoclassical economics" or "[[Marginalist Revolution|marginalism]]" formed from about 1870 to 1910. The term "economics" was popularized by such neoclassical economists as [[Alfred Marshall]] as a concise synonym for 'economic science' and a substitute for the earlier "[[political economy]]".<ref name="MarshallJevons" /> This corresponded to the influence on the subject of mathematical methods used in the [[natural science]]s.<ref name="Clark">Clark, Barry (1998). ''Political Economy: A Comparative Approach'', Praeger.</ref>
 
Neoclassical economics systematized [[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 dispensed with the [[labour theory of value]] inherited from classical economics in favor of a [[marginal utility]] theory of value on the demand side and a more general theory of costs on the supply side.<ref>Campos, Antonietta (1987). "marginalist economics", ''The New Palgrave: A Dictionary of Economics'', v. 3, p. 320</ref> In the 20th century, neoclassical theorists moved away from an earlier notion suggesting that total utility for a society could be measured in favor of [[ordinal utility]], which hypothesizes merely behavior-based relations across persons.<ref name="Hicks"/><ref>R.D. Collison Black (1987 [2008])). "utility", ''The New Palgrave: A Dictionary of Economics'', v. 3, p. 778.</ref>
 
In [[microeconomics]], neoclassical economics represents incentives and costs as playing a pervasive role in shaping [[decision making]]. An immediate example of this is the [[consumer theory]] of individual demand, which isolates how prices (as costs) and income affect quantity demanded.<ref name="Hicks"/> In [[macroeconomics]] it is reflected in an early and lasting [[neoclassical synthesis]] with Keynesian macroeconomics.<ref name="Blanchard2008"/><ref>[[John Hicks|Hicks, J.R.]] (1937). "Mr. Keynes and the 'Classics': A Suggested Interpretation", ''Econometrica'', 5(2), p [http://links.jstor.org/sici?sici=0012-9682%28193704%295%3A2%3C147%3AMKAT%22A%3E2.0.CO%3B2-E&size=LARGE&origin=JSTOR-enlargePage p. 147–159].</ref>
 
Neoclassical economics is occasionally referred as ''orthodox economics'' whether by its critics or sympathizers. Modern [[mainstream economics]] builds on neoclassical economics but with many refinements that either supplement or generalize earlier analysis, such as [[econometrics]], [[game theory]], analysis of [[market failure]] and [[imperfect competition]], and the [[neoclassical model]] of [[economic growth]] for analyzing long-run variables affecting [[national income]].
 
===Keynesian economics===
{{Main|Keynesian economics|Post-Keynesian economics|}}
[[File:WhiteandKeynes.jpg|right|thumb|upright|[[John Maynard Keynes]] (right), was a key theorist in economics.]]
 
Keynesian economics derives from [[John Maynard Keynes]], in particular his book ''[[The General Theory of Employment, Interest and Money]]'' (1936), which ushered in contemporary [[macroeconomics]] as a distinct field.<ref>• {{cite book |last=Keynes |first=John Maynard |title=[[The General Theory of Employment, Interest and Money]] |publisher= Macmillan|year=1936 |location=London |isbn=1-57392-139-4 }}<br />&nbsp;&nbsp; • Blaug, Mark (2007). "The Social Sciences: Economics", ''The New Encyclopædia Britannica'', v. 27, p. 347. Chicago.</ref> The book focused on determinants of national income in the short run when prices are relatively inflexible. Keynes attempted to explain in broad theoretical detail why high labour-market unemployment might not be self-correcting due to low "[[effective demand]]" and why even price flexibility and monetary policy might be unavailing. The term "revolutionary" has been applied to the book in its impact on economic analysis.<ref>• Tarshis, L. (1987). "Keynesian Revolution", ''The New Palgrave: A Dictionary of Economics'', v. 3, pp. 47–50.<br />&nbsp;&nbsp; • Samuelson, Paul A., and William D. Nordhaus (2004). ''[[Economics (textbook)|Economics]]'', p. 5.<br />&nbsp;&nbsp; • Blaug, Mark (2007). "The Social Sciences: Economics", ''The New Encyclopædia Britannica'', v. 27, p. 346. Chicago.</ref>
 
Keynesian economics has two successors. [[Post-Keynesian economics]] also concentrates on macroeconomic rigidities and adjustment processes. Research on micro foundations for their models is represented as based on real-life practices rather than simple optimizing models. It is generally associated with the [[University of Cambridge]] and the work of [[Joan Robinson]].<ref>Harcourt, G.C.(1987). "Post-Keynesian Economics", ''The New Palgrave: A Dictionary of Economics'', v. 3, pp. 47–50.</ref>
 
[[New-Keynesian economics]] is also associated with developments in the Keynesian fashion. Within this group researchers tend to share with other economists the emphasis on models employing micro foundations and optimizing behavior but with a narrower focus on standard Keynesian themes such as price and wage rigidity. These are usually made to be endogenous features of the models, rather than simply assumed as in older Keynesian-style ones.
 
===Chicago school of economics===
{{Main|Chicago school (economics)}}
The Chicago School of economics is best known for its free market advocacy and [[monetarist]] ideas. According to [[Milton Friedman]] and monetarists, market economies are inherently stable if the money supply does not greatly expand or contract. [[Ben Bernanke]], current Chairman of the Federal Reserve, is among the economists today generally accepting Friedman's analysis of the causes of the Great Depression.<ref name="fed">{{cite web|url=http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm|title=Remarks by Governor Ben S. Bernanke |publisher=The Federal Reserve Board|accessdate=2008-02-26|date=2002-11-08|author=Ben Bernanke}}</ref>
 
Milton Friedman effectively took many of the basic principles set forth by [[Adam Smith]] and the classical economists and modernized them. One example of this is his article in the September 1970 issue of The New York Times Magazine, where he claims that the social responsibility of business should be "to use its resources and engage in activities designed to increase its profits&nbsp;... (through) open and free competition without deception or fraud."<ref>Friedman, Milton. "The Social Responsibility of Business is to Increase its Profits." The New York Times Magazine 13 Sep. 1970.</ref>
 
===Other schools and approaches===
{{Main|Schools of economics}}
Other well-known schools or trends of thought referring to a particular style of economics practiced at and disseminated from well-defined groups of academicians that have become known worldwide, include the [[Austrian School]], the [[Freiburg School]], the [[School of Lausanne]], [[post-Keynesian economics]] and the [[Stockholm school (economics)|Stockholm school]]. Contemporary [[mainstream economics]] is sometimes separated into the Saltwater approach of those universities along the [[East Coast of the United States|Eastern]] and [[West coast of the United States|Western]] coasts of the US, and the Freshwater, or Chicago-school approach.
 
Within macroeconomics there is, in general order of their appearance in the literature; [[classical economics]], [[Keynesian economics]], the neoclassical synthesis, [[post-Keynesian economics]], [[monetarism]], [[new classical economics]], and [[supply-side economics]]. Alternative developments include [[ecological economics]], [[constitutional economics]], [[institutional economics]], [[evolutionary economics]], [[dependency theory]], [[structuralist economics]], [[world systems theory]], [[econophysics]], [[feminist economics]] and [[biophysical economics]].<ref>[http://www.nytimes.com/gwire/2009/10/23/23greenwire-new-school-of-thought-brings-energy-to-the-dis-63367.html?pagewanted=all New School of Thought Brings Energy to 'the Dismal Science'] [[New York Times]] Retrieved Oct-26-09</ref>
 
==Criticisms==
 
===General criticisms===
"[[The dismal science]]" is a derogatory alternative name for economics devised by the [[Victorian era|Victorian]] historian [[Thomas Carlyle]] in the 19th century. It is often stated that Carlyle gave economics the nickname "the dismal science" as a response to the late 18th century writings of The Reverend [[Thomas Malthus|Thomas Robert Malthus]], who grimly predicted that starvation would result, as projected population growth exceeded the rate of increase in the food supply. However, the actual phrase was coined by Carlyle in the context of a debate with [[John Stuart Mill]] on [[slavery]], in which Carlyle argued for slavery, while Mill opposed it.<ref name="Dismal"/>
 
Some economists, like [[John Stuart Mill]] or [[Léon Walras]], have maintained that the production of wealth should not be tied to its distribution. The former is in the field of "applied economics" while the latter belongs to "social economics" and is largely a matter of power and politics.<ref>''The Origin of Economic Ideas'', Guy Routh (1989)</ref>
 
In ''The Wealth of Nations'', [[Adam Smith]] addressed many issues that are currently also the subject of debate and dispute. Smith repeatedly attacks groups of politically aligned individuals who attempt to use their collective influence to manipulate a government into doing their bidding. In Smith's day, these were referred to as [[Political faction|factions]], but are now more commonly called [[special interests]], a term which can comprise international bankers, corporate conglomerations, outright [[oligopolies]], [[monopolies]], [[trade unions]] and other groups.<ref>See Noam Chomsky (''Understanding Power''), [http://www.understandingpower.com/Chapter5.htm#f1] on Smith's emphasis on class conflict in the Wealth of Nations</ref>
 
Economics per se, as a social science, is independent of the political acts of any government or other decision-making organization, however, many [[policymaker]]s or individuals holding highly ranked positions that can influence other people's lives are known for arbitrarily using a plethora of economic concepts and [[rhetoric]] as vehicles to legitimize [[Political agenda|agendas]] and [[value systems]], and do not limit their remarks to matters relevant to their responsibilities.<ref name="dismal science to get real">Sara Ledwith and Antonella Ciancio, [http://www.reuters.com/article/2012/07/03/us-europe-economics-teaching-idUSBRE86207O20120703 Special Report: Crisis forces "dismal science" to get real], [[Reuters]] (July 3, 2012)</ref> The close relation of economic theory and practice with [[politics]]<ref>[http://www.wider.unu.edu/publications/rps/rps2006/rp2006-148.pdf Research Paper No. 2006/148 Ethics, Rhetoric and Politics of Post-conflict Reconstruction How Can the Concept of Social ContractHelp Us in Understanding How to Make Peace Work? Sirkku K. Hellsten, pg. 13]{{dead link|date=January 2011}}</ref> is a focus of contention that may shade or distort the most unpretentious original tenets of economics, and is often confused with specific social agendas and value systems.<ref>{{cite web|author=Dan F. Hahn New York University |url=http://www.stratapub.com/Hahn/preface.htm |title=Political Communication: Rhetoric, Government, and Citizens, second edition, Dan F. Hahn |publisher=Stratapub.com |date=2001-09-11 |accessdate=2010-09-10}}</ref>
 
Notwithstanding, economics legitimately has a role in informing government policy. It is, indeed, in some ways an outgrowth of the older field of political economy. Some academic economic journals are currently focusing increased efforts on gauging the consensus of economists regarding certain policy issues in hopes of effecting a more informed political environment. Currently, there exists a low approval rate from professional economists regarding many public policies. Policy issues featured in a recent survey of AEA economists include trade restrictions, social insurance for those put out of work by international competition, genetically modified foods, curbside recycling, health insurance (several questions), medical malpractice, barriers to entering the medical profession, organ donations, unhealthy foods, mortgage deductions, taxing internet sales, Wal-Mart, casinos, ethanol subsidies, and inflation targeting.<ref>Whaples, Robert. "The Policy Views of American Economic Association Members: The Results of a New Survey". ''Econ Journal Watch'' 6(3): 337–348. [http://econjwatch.org/articles/the-policy-views-of-american-economic-association-members-the-results-of-a-new-survey]</ref>
 
In ''Steady State Economics'' 1977, [[Herman Daly]] argues that there exist logical inconsistencies between the emphasis placed on economic growth and the limited availability of natural resources.<ref>[http://dieoff.org/page88.htm Steady-State Economics], by Herman Daly</ref>
 
Issues like [[central bank]] independence, central bank policies and rhetoric in central bank governors discourse or the premises of [[macroeconomics#Macroeconomic policy|macroeconomic policies]]<ref>Johan Scholvinck, Director of the UN Division for Social Policy and Development in New York, [http://www.icsw.org/publications/sdr/2002-june/un-division.htm Making the Case for the Integration of Social and Economic Policy], The Social Development Review</ref> ([[monetary policy|monetary]] and [[fiscal policy]]) of the [[State (polity)|state]], are focus of contention and criticism.<ref>• Bernd Hayo (Georgetown University & University of Bonn), [http://ideas.repec.org/p/wpa/wuwpma/0103006.html Do We Really Need Central Bank Independence? A Critical Re- examination], IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut<br />&nbsp;&nbsp; • Gabriel Mangano (Centre Walras-Pareto, University of Lausanne BFSH 1, 1015 Lausanne, Switzerland, and London School of Economics), Measuring Central Bank Independence: A Tale of Subjectivity and of Its Consequences, Oxford Economic Papers. 1998; 50: 468–492.<br />&nbsp;&nbsp; • Friedrich Heinemann, [http://ideas.repec.org/p/zbw/zewdip/4553.html Does it Pay to Watch Central Bankers' Lips? The Information Content of ECB Wording], IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut<br />&nbsp;&nbsp; • Stephen G. Cecchetti, [http://ideas.repec.org/p/nbr/nberwo/6306.html Central Bank Policy Rules: Conceptual Issues and Practical Considerations], IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut</ref>
 
[[Deirdre McCloskey]] has argued that many empirical economic studies are poorly reported, and she and Stephen Ziliak argue that although [[McCloskey critique|her critique]] has been well-received, practice has not improved.<ref name=Ziliak2004>{{cite journal | author = Ziliak, S.T. | coauthors = [[Deirdre McCloskey|McCloskey, D.N.]] | year = 2004 | title = Size Matters: The Standard Error of Regressions in the American Economic Review | journal = Econ Journal Watch | volume = 1 | issue = 2
| pages = 331–358 | url =http://www.econjournalwatch.org/pdf/ZiliakMcCloskeyAugust2004.pdf | archiveurl =https://web.archive.org/web/20080625054144/http://www.econjournalwatch.org/pdf/ZiliakMcCloskeyAugust2004.pdf | archivedate =2008-06-25 | accessdate = 2008-06-10|format=PDF}}</ref> This latter contention is controversial.<ref>{{cite journal | author = | year = | title = Sound and Fury: McCloskey and Significance Testing in Economics | url = http://ideas.repec.org/p/wpa/wuwpem/0511018.html | accessdate = 2008-06-10}}</ref>
 
During the [[2007–2012 global financial crisis]], an increasing number of teachers argued that the specialized economics textbooks, some written by experts who did not see the crisis coming, were almost useless because their elaborated content was divorced from reality.<ref name="dismal science to get real"/>
 
A 2002 [[International Monetary Fund]] study looked at "consensus forecasts" (the forecasts of large groups of economists) that were made in advance of 60 different national recessions in the 1990s: in 97% of the cases the economists did not predict the contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated their severity.<ref>"How Accurate Are Private Sector Forecasts? Cross-Country Evidence from Consensus Forecasts of Output Growth", by Prakash Loungani, International Monetary Fund (IMF), December 2002</ref>
 
===Criticisms of assumptions===
Economics has been subject to criticism that it relies on unrealistic, unverifiable, or highly simplified assumptions, in some cases because these assumptions simplify the proofs of desired conclusions. Examples of such assumptions include [[perfect information]], [[profit maximization]] and [[rational choice theory|rational choices]].<ref>Rappaport, Steven (1996). "Abstraction and Unrealistic Assumptions in Economics", ''Journal of Economic Methodology'', 3(2), pp. 215–236. [http://www.informaworld.com/smpp/content~content=a739439848~db=all Abstract, ] (1998). ''Models and Reality in Economics''. Edward Elgar, p. 6, ch. 6–8.</ref><ref>Friedman, Milton (1953), "The Methodology of Positive Economics", ''Essays in Positive Economics'', University of Chicago Press, pp. 14–15, 22, 31.<br />&nbsp;&nbsp; • Boland, Lawrence A. (2008). "assumptions controversy", ''[[The New Palgrave Dictionary of Economics, 2nd Edition]]'' [http://www.dictionaryofeconomics.com/article?id=pde2008_A000231&q=assumption&topicid=&result_number=1 Online abstract.] Accessed May 30, 2008.</ref> The field of [[information economics]] includes both mathematical-economical research and also [[behavioral economics]], akin to studies in [[behavioral psychology]].<ref name=Hodgson2007>{{cite journal | author = Hodgson, G.M | year = 2007 | title = Evolutionary and Institutional Economics as the New Mainstream | journal = Evolutionary and Institutional Economics Review | volume = 4 | issue = 1 | pages = 7–25 | url = http://www.jstage.jst.go.jp/article/eier/4/1/7/_pdf | accessdate = 2010-10-02 }}</ref>
 
Nevertheless, prominent mainstream economists such as Keynes<ref>
{{cite journal
| last = Keynes
| first = J. M.
| authorlink = J.M. Keynes
| coauthors =
| title = Alfred Marshall 1842–1924
| journal = The Economic Journal
| volume = 34
| issue = 135
| pages = 311–372
| publisher =
| location =
|date=September 1924
| jstor =2222645
| doi =10.2307/2222645
| id =}}
</ref> and Joskow have observed that much of economics is conceptual rather than quantitative, and difficult to model and formalize quantitatively. In a discussion on [[oligopoly]] research, [[Paul Joskow]] pointed out in 1975 that in practice, serious students of actual economies tended to use "informal models" based upon qualitative factors specific to particular industries. Joskow had a strong feeling that the important work in oligopoly was done through informal observations while formal models were "trotted out ''[[ex post]]''". He argued that formal models were largely not important in the empirical work, either, and that the fundamental factor behind the theory of the firm, behavior, was neglected.<ref>
{{cite journal
| last = Joskow
| first = Paul
| authorlink =Paul Joskow
| coauthors =
| title = Firm Decision-making Policy and Oligopoly Theory
| journal = The American Economic Review
| volume = 65
| issue = 2, Papers and Proceedings of the Eighty–seventh Annual Meeting of the American Economic Association
| pages = 270–279, Particularly 271
| publisher =
| location =
|date=May 1975
| jstor =1818864
| doi =
| id =}}
</ref>
 
In recent years, feminist critiques of neoclassical economic models gained prominence, leading to the formation of [[feminist economics]].<ref>England, Paula (1993). "The Separative Self: Androcentric Bias in Neoclassical Assumptions", ''Beyond Economic Man: Feminist Theory and Economics'', University of Chicago Press, pp.&nbsp;37–53.<br /></ref> Contrary to common conceptions of economics as a [[positive economics|positive]] and [[objectivity (philosophy)|objective]] science, feminist economists call attention to the social construction of economics<ref name="beyond">Ferber, M.A. and Julie A. Nelson, "''Beyond Economic Man'': Ten Years Later," in Marianne A. Ferber and Julie A. Nelson, eds., ''Feminist Economics Today: Beyond Economic Man''. Chicago: University of Chicago Press, 2003.</ref> and highlight the ways in which its models and methods reflect masculine preferences. Primary criticisms focus on failures to account for: the selfish nature of actors ([[homo economicus]]); exogenous tastes; the impossibility of utility comparisons; the exclusion of unpaid work; and the exclusion of class and gender considerations. [[Feminist economics]] developed to address these concerns, and the field now includes critical examinations of many areas of economics including paid and unpaid work, economic epistemology and history, globalization, household economics and the care economy. In 1988, [[Marilyn Waring]] published the book ''[[If Women Counted]]'', in which she argues that the discipline of economics ignores [[women's work|women's unpaid work]] and the value of [[nature]];<ref>[[Marilyn Waring]] (1988.) ''[[If Women Counted]]''. San Francisco: Harper & Row. ISBN 0-06-250933-0</ref> according to [[Julie A. Nelson]], ''If Women Counted'' "showed exactly how the unpaid work traditionally done by women has been made invisible within [[national accounts|national accounting systems]]" and "issued a wake-up call to issues of ecological [[sustainability]]."<ref>{{cite book|last=Nelson|first=Julie A.|authorlink=Julie A. Nelson|editor1-last=Bjørnholt|editor1-first =Margunn|editor1-link=Margunn Bjørnholt|editor2-last=McKay|editor2-first =Ailsa|editor2-link=Ailsa McKay|title=Counting on Marilyn Waring: New Advances in Feminist Economics|year=2014|publisher=[[Demeter Press]]|chapter=Foreword|isbn=9781927335277}}</ref> Bjørnholt and McKay argue that the [[financial crisis of 2007–08]] and the response to it revealed a crisis of ideas in mainstream economics and within the economics profession, and call for a reshaping of both the economy, economic theory and the economics profession. They argue that such a reshaping should include new advances within feminist economics that take as their starting point the socially responsible, sensible and accountable subject in creating an economy and economic theories that fully acknowledge care for each other as well as the planet.<ref>{{cite book|last1=Bjørnholt|first1=Margunn|author-link1=Margunn Bjørnholt|last2=McKay|first2=Ailsa|author-link2=Ailsa McKay|editor1-last=Bjørnholt|editor1-first =Margunn|editor1-link=Margunn Bjørnholt|editor2-last=McKay|editor2-first =Ailsa|editor2-link=Ailsa McKay|title=Counting on Marilyn Waring: New Advances in Feminist Economics|year=2014|publisher=[[Demeter Press]]|chapter=Advances in Feminist Economics in Times of Economic Crisis|isbn=9781927335277}}</ref>
 
Philip Mirowski observes that
{{quote|
The imperatives of the orthodox research programme [of economic science] leave little room for maneuver and less room for originality.&nbsp;... These mandates&nbsp;... Appropriate as many mathematical techniques and metaphorical expressions from contemporary respectable science, primarily physics as possible.&nbsp;... Preserve to the maximum extent possible the attendant nineteenth-century overtones of "natural order"&nbsp;... Deny strenuously that neoclassical theory slavishly imitates physics.&nbsp;... Above all, prevent all rival research programmes from encroaching&nbsp;... by ridiculing all external attempts to appropriate twentieth century physics models.&nbsp;... All theorizing is [in this way] held hostage to nineteenth-century concepts of energy.<ref>
Philip Mirowski, [http://www.amazon.com/More-Heat-than-Light-Perspectives/product-reviews/0521426898/ref=dp_top_cm_cr_acr_txt?ie=UTF8&showViewpoints=1 More Heat Than Light: Economics as Social Physics]. New York: Cambridge University Press, 1989, pp. 377–8.
</ref>
}}
 
In a series of peer-reviewed journal and conference papers and books published over a period of several decades, [[John McMurtry]]<ref>Please see partial list of publications, including peer-reviewed papers and books, on [[John McMurtry]]'s wikipedia page, as well as links to the text of several of his peer-reviewed papers and peer-reviewed secondary references analyzing and discussing his work.</ref> has provided extensive criticism of what he terms the "unexamined assumptions and implications [of economics], and their consequent cost to people's lives."<ref name="McMurtryCancerStage">
[[John McMurtry]], The Cancer Stage of Capitalism. London, Pluto Books, 1999. The book is a scholarly examination and criticism of economics. The book is available for free download from several sites online, for example here [http://www.jaunimieciai.lt/wp-content/uploads/2011/02/the-cancer-stage-of-capitalism.pdf]. (In April 2012, the author stated he is working on an updated edition.)
</ref>
 
[[Nassim Nicholas Taleb]] and [[Michael Perelman]] are two additional scholars who criticized conventional or mainstream economics. Taleb opposes most economic theorizing, which in his view suffers acutely from the problem of overuse of Plato's Theory of Forms, and calls for cancellation of the [[Nobel Memorial Prize in Economics]], saying that the damage from economic theories can be devastating.<ref>
Cox, Adam. [http://www.reuters.com/article/idUSTRE68R2SK20100928 "Blame Nobel for crisis, says author of 'Black Swan'"], [[Reuters]] (2010-09-28).</ref><ref>{{cite web|last=Taleb|first=Nassim Nicholas|title=The pseudo-science hurting markets|date=October 23, 2007|url=http://www.fooledbyrandomness.com/FT-Nobel.pdf|postscript=<!--None-->}}</ref>  Michael Perelman provides extensive criticism of economics and its assumptions in all his [[Michael Perelman#Books|books]] (and especially his [[Michael Perelman#Books|books]] published from 2000 to date), papers and interviews.
 
Despite these concerns, mainstream graduate programs have become increasingly technical and mathematical.<ref name=Textbooks2004>{{cite journal | author = Johansson D. | year = 2004 | title = Economics without Entrepreneurship or Institutions: A Vocabulary Analysis of Graduate Textbooks | journal = Econ Journal Watch | volume = 1 | issue = 3
| pages = 515–538 | url = http://www.econjournalwatch.org/pdf/JohanssonPractice1December2004.pdf | archiveurl = https://web.archive.org/web/20080625054127/http://www.econjournalwatch.org/pdf/JohanssonPractice1December2004.pdf | archivedate = 2008-06-25 | accessdate = 2008-06-07|format=PDF}}</ref><ref name=Sutter2007>Sutter, Daniel, and Rex Pjesky (2007). "Where Would Adam Smith Publish Today? The Near Absence of Math-free Research in Top Journals," ''Econ Journal Watch'',  4(2), pp.
230-240. [http://econjwatch.org/articles/where-would-adam-smith-publish-today-the-near-absence-of-math-free-research-in-top-journals Abstract.] Retrieved 2013-04-04.</ref>
 
==See also==
{{Portal|Business and economics}}
{{Wikipedia books|Economics}}
* [[Budget]]
* [[Economics terminology that differs from common usage]]
* [[Constitutional economics]]
* [[Economic ideology]]
* [[Economic policy]]
* [[List of economics films]]
* [[Socioeconomics]]
 
'''General:'''
* [[Index of economics articles]]
* [[Outline of economics]]
 
==References==
{{reflist|colwidth=30em}}
 
==Further reading==
* McCann, Charles Robert, Jr., 2003. ''The Elgar Dictionary of Economic Quotations'', Edward Elgar. [http://books.google.com/books?id=fFnV_Jg9LJIC&printsec=frontcover&source=gbs_v2_summary_r&cad=0#v=onepage&q&f=false Preview].
 
==External links==
{{Wiktionary|economics}}
{{Sister project links}}
{{Wikiversity|School:Economics}}
{{Library resources box
|by=no
|onlinebooks=no
|others=no
|about=yes
|label=Economics }}
 
;General information
{{refbegin|2}}
* {{dmoz|Science/Social_Sciences/Economics/|Economics}}
* [http://www.oswego.edu/~economic/journals.htm Economic journals on the web]
* [http://www.britannica.com/eb/article-9109547/economics Economics] at ''[[Encyclopædia Britannica]]''
* [http://www.intute.ac.uk/socialsciences/economics/ Intute: Economics]: [[Internet directory]] of UK universities
* [http://repec.org/ Research Papers in Economics (RePEc)]
* [http://rfe.org/ Resources For Economists]: [[American Economic Association]]-sponsored guide to 2,000+ Internet resources from "Data" to "Neat Stuff", updated quarterly.
{{refend}}
 
;Institutions and organizations
{{refbegin|2}}
* [http://edirc.repec.org/ Economics Departments, Institutes and Research Centers in the World]
* [http://www.oecd.org/statistics/ Organization For Co-operation and Economic Development (OECD) Statistics]
* [http://unstats.un.org/unsd United Nations Statistics Division]
* [http://data.worldbank.org/ World Bank Data]
{{refend}}
 
;Study resources
{{refbegin|2}}
* [http://www.oswego.edu/~economic/newbooks.htm A guide to several online economics textbooks]
* [http://economics.about.com/ Economics at About.com]
* [[b:Economics|Economics textbooks]] on [[b:Main Page|Wikibooks]]
* [http://www.econguru.com/introduction_to_economics/ Introduction to Economics]: Short [[Creative commons]]-licensed introduction to basic economics
* [http://www.merlot.org/merlot/materials.htm?category=2216 MERLOT Learning Materials: Economics]: US-based database of learning materials
* [http://ocw.mit.edu/OcwWeb/Economics/index.htm MIT OpenCourseWare: Economics]: Archive of study materials from [[MIT]] courses
* [http://www.economicsnetwork.ac.uk/links/othertl.htm Online Learning and Teaching Materials] UK Economics Network's database of text, slides, glossaries and other resources
* [http://homepage.newschool.edu/het/thought.htm Schools of Thought]: Compare various economic schools of thought on particular issues
* [http://www.econlib.org/ The Library of Economics and Liberty (Econlib)]: Economics Books, Articles, Blog (EconLog), Podcasts (EconTalk)
{{refend}}
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