1.
Economic history of the world
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The economic history of the world is a record of the economic activities of all humans, spanning both recorded history and evidenced prehistory. Throughout the Paleolithic Era the primary unit was the band. Communication between bands occurred for the purposes of trading ideas and stories, tools, foods, skins and other commodities, economic resources were constrained by typical ecosystem factors, density and replacement rates of edible flora and fauna, competition from other consumers and climate. It has been estimated that throughout prehistory, the world average GDP per capita was about $158 per annum and this age was from 500, 000-10,000 BC. Division of labour and evolution of new crafts, tribal units became naturally isolated through time from the over-all developments in skill and technique present within their neighbouring environment. To utilize artifacts made by tribes specializing in areas of production not present to other tribes, exchange, the first object or physical thing specifically used in a way similar enough to the modern definition of money, i. e. in exchange, was cattle. Trading in red ochre is attested in Swaziland, shell jewellery in the form of strung beads also dates back to this period, and had the basic attributes needed of commodity money. To organize production and to goods and services among their populations, before market economies existed, people relied on tradition, top-down command. For a summary of the laws, see Babylonian law, temples are historys first documented creditors at interest, beginning in Sumer in the third millennium. By charging interest and ground rent on their own assets and property, temples helped legitimize the idea of interest‑bearing debt, india and China, the two largest economies respectively, accounted for more than half the size of the world economy. Despite the high GDP, these nations being major population centers, during the time of the trade of the Occident with Rome, Egypt was the wealthiest of all places within the Roman Empire. The merchants of Rome acquired produce from Persia through Egypt, by way of the port of Berenice, according to Herodotus, and most modern scholars, the Lydians were the first people to introduce the use of gold and silver coin. It is thought that these first stamped coins were minted around 650–600 BC, a stater coin was made in the stater denomination. To complement the stater, fractions were made, the trite, the hekte, the first economist is considered to be Hesiod, by the fact of his having written on the fundamental subject of the scarcity of resources, in Works and Days. Greek and Roman thinkers made various observations, especially Aristotle. Many other Greek writings show understanding of sophisticated economic concepts, for instance, a form of Gresham’s Law is presented in Aristophanes’ Frogs. Bryson of Heraclea was a neo-platonic who is cited as having influenced early Muslim economic scholarship. In the Middle Ages the world economy slowly expanded with the increase of population, the silk road was used for trading between Europe, Central Asia and China
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History of economic thought
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The history of economic thought deals with different thinkers and theories in the subject that became political economy and economics, from the ancient world to the present day. It encompasses many disparate schools of economic thought, ancient Greek writers such as the philosopher Aristotle examined ideas about the art of wealth acquisition, and questioned whether property is best left in private or public hands. In the Middle Ages, scholasticists such as Thomas Aquinas argued that it was an obligation of businesses to sell goods at a just price. Fan Li, an adviser to King Goujian of Yue, wrote on economic issues, chanakya wrote the Arthashastra, a treatise on statecraft, economic policy and military strategy. Ancient Athens, a society, developed an embryonic model of democracy. Xenophons Oeconomicus is a dialogue principally about household management and agriculture, Platos dialogue The Republic describing an ideal city-state run by philosopher-kings contained references to specialization of labor and to production. Plato was the first to advocate the theory of money. Aristotles Politics analyzed different forms of the state as a critique of Platos model of a philosopher-kings, of particular interest for economists, Plato provided a blueprint of a society based on common ownership of resources. Aristotle viewed this model as an oligarchical anathema, though Aristotle did certainly advocate holding many things in common, he argued that not everything could be, simply because of the wickedness of human nature. It is clearly better that property should be private, wrote Aristotle, but the use of it common, in Politics Book I, Aristotle discusses the general nature of households and market exchanges. Aristotle himself highly disapproved of usury and cast scorn on making money through a monopoly, not useful as a means to any of the necessities of life. Thomas Aquinas was an Italian theologian and economic writer and he taught in both Cologne and Paris, and was part of a group of Catholic scholars known as the Schoolmen, who moved their enquiries beyond theology to philosophical and scientific debates. In the treatise Summa Theologica Aquinas dealt with the concept of a just price, similar in many ways to the modern concept of long run equilibrium, a just price was just sufficient to cover the costs of production, including the maintenance of a worker and his family. Aquinas argued it was immoral for sellers to raise their prices simply because buyers had a pressing need for a product, Aquinas discusses a number of topics in the format of questions and replies, substantial tracts dealing with Aristotles theory. Questions 77 and 78 concern economic issues, primarily what a just price might be, Aquinas argued against any form of cheating and recommended always paying compensation in lieu of good service. Whilst human laws might not impose sanctions for unfair dealing, divine law did, one of Aquinas main critics was Duns Scotus, originally from Duns Scotland, who taught in Oxford, Cologne, and Paris. If people did not benefit from a transaction, in Scotus view, Scotus said merchants perform a necessary and useful social role by transporting goods and making them available to the public. Jean Buridan was a French priest, buridanus looked at money from two angles, its metal value and its purchasing power, which he acknowledged can vary
3.
Economics
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Economics is a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services according to the Merriam-Webster Dictionary. Economics focuses on the behaviour and interactions of economic agents and how economies work, consistent with this focus, textbooks often distinguish between microeconomics and macroeconomics. Microeconomics examines the behaviour of elements in the economy, including individual agents and markets, their interactions. Individual agents may include, for example, households, firms, buyers, macroeconomics analyzes the entire economy and issues affecting it, including unemployment of resources, inflation, economic growth, and the public policies that address these issues. Economic analysis can be applied throughout society, as in business, finance, health care, Economic analyses may also be applied to such diverse subjects as crime, education, the family, law, politics, religion, social institutions, war, science, and the environment. At the turn of the 21st century, the domain of economics in the social sciences has been described as economic imperialism. The ultimate goal of economics is to improve the conditions of people in their everyday life. There are a variety of definitions of economics. Some of the differences may reflect evolving views of the subject or different views among economists, to supply the state or commonwealth with a revenue for the publick services. Say, distinguishing the subject from its uses, defines it as the science of production, distribution. On the satirical side, Thomas Carlyle coined the dismal science as an epithet for classical economics, in this context and 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. He affirmed that previous economists have usually centred their studies on the analysis of wealth, how wealth is created, distributed, and consumed, but he said that economics can be used to study other things, such as war, that are outside its usual focus. This is because war has as the goal winning it, generates both cost and benefits, and, resources are used to attain the goal. If the war is not winnable or if the costs outweigh the benefits. Some subsequent comments criticized the definition as overly broad in failing to limit its subject matter to analysis of markets, there are other criticisms as well, such as in scarcity not accounting for the macroeconomics of high unemployment. The same source reviews a range of included in principles of economics textbooks. Among economists more generally, it argues that a particular definition presented may reflect the direction toward which the author believes economics is evolving, microeconomics examines how entities, forming a market structure, interact within a market to create a market system
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Supply and demand
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In microeconomics, supply and demand is an economic model of price determination in a market. By contrast, responses to changes in the price of the good are represented as movements along unchanged supply, a supply schedule is a table that shows the relationship between the price of a good and the quantity supplied. Under the assumption of perfect competition, supply is determined by marginal cost and that is, firms will produce additional output while the cost of producing an extra unit of output is less than the price they would receive. A hike in the cost of raw goods would decrease supply, shifting costs up, while a discount would increase supply, shifting costs down, by its very nature, conceptualizing a supply curve requires the firm to be a perfect competitor. This is true because each point on the curve is the answer to the question If this firm is faced with this potential price, how much output will it be able to. Economists distinguish between the curve of an individual firm and between the market supply curve. The market supply curve is obtained by summing the quantities supplied by all suppliers at each potential price, thus, in the graph of the supply curve, individual firms supply curves are added horizontally to obtain the market supply curve. Economists also distinguish the market supply curve from the long-run market supply curve. In this context, two things are assumed constant by definition of the run, the availability of one or more fixed inputs. In the long run, firms have a chance to adjust their holdings of physical capital, furthermore, in the long run potential competitors can enter or exit the industry in response to market conditions. For both of these reasons, long-run market supply curves are generally flatter than their short-run counterparts, the determinants of supply are, Production costs, how much a goods costs to be produced. Production costs are the cost of the inputs, primarily labor, capital, energy and they depend on the technology used in production, and/or technological advances. Following the law of demand, the curve is almost always represented as downward-sloping, meaning that as price decreases. Just like the supply curves reflect marginal cost curves, demand curves are determined by marginal utility curves, the demand schedule is defined as the willingness and ability of a consumer to purchase a given product in a given frame of time. It is aforementioned, that the curve is generally downward-sloping. Two different hypothetical types of goods with upward-sloping demand curves are Giffen goods, by its very nature, conceptualizing a demand curve requires that the purchaser be a perfect competitor—that is, that the purchaser has no influence over the market price. This is true because each point on the curve is the answer to the question If this buyer is faced with this potential price. If a buyer has market power, so its decision of how much to buy influences the price, then the buyer is not faced with any price
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Outline of economics
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The following hierarchical outline is provided as an overview of and topical guide to economics, Economics – analyzes the production, distribution, and consumption of goods and services. It aims to explain how economies work and how economic agents interact, field of science – widely recognized category of specialized expertise within science, and typically embodies its own terminology and nomenclature. Such a field will usually be represented by one or more scientific journals, there are many economics-related scientific journals. Social science – field of scholarship that explores aspects of human society. Macroeconomics – branch of economics dealing with the performance, structure, behavior, microeconomics – branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources. These two channels influence growth and employment, and are determined by the central bank and the government respectively. Monopolistic competition, also called competitive market, where there are a number of independent firms which have a very small proportion of the market share. Monopoly, where there is only one provider of a product or service, monopsony, when there is only one buyer in a market. Natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm, oligopoly, in which a market is dominated by a small number of firms which own more than 40% of the market share. Oligopsony, a market dominated by many sellers and a few buyers. S, merton Miller, who started his academic career teaching economic history at the LSE, won the Nobel Memorial Prize in 1990 with Harry Markowitz and William F. Sharpe
6.
Schools of economic thought
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In the history of economic thought, a school of economic thought is a group of economic thinkers who share or shared a common perspective on the way economies work. While economists do not always fit into particular schools, particularly in modern times, Economic thought may be roughly divided into three phases, premodern, early modern and modern. Systematic economic theory has developed mainly since the beginning of what is termed the modern era. Currently, the majority of economists follow an approach referred to as mainstream economics. Within the mainstream in the United States, distinctions can be made between the Saltwater school, and the more ideas of the Freshwater school. Both of these schools of thought are associated with the neoclassical synthesis, other longstanding heterodox schools of economic thought include Austrian economics and Marxian economics. Islamic economics is the practice of economics in accordance with Islamic law, Islamic economics seeks to enforce Islamic regulations not only on personal issues, but to implement broader economic goals and policies of an Islamic society, based on uplifting the deprived masses. It was founded on free and unhindered circulation of wealth so as to reach even the lowest echelons of society. One distinguishing feature is the tax on wealth, and bans levying taxes on all kinds of trade, another distinguishing feature is prohibition of interest in the form of excess charged while trading in money. Its pronouncement on use of paper currency also stands out, though promissory notes are recognized, they must be fully backed by reserves. Fractional-reserve banking is disallowed as a form of breach of trust and this school has seen a revived interest in development and understanding since the later part of the 20th century. Economic policy in Europe during the late Middle Ages and early Renaissance treated economic activity as a good which was to be taxed to raise revenues for the nobility and the church. Economic exchanges were regulated by feudal rights, such as the right to collect a toll or hold a faire, as well as guild restrictions, Economic policy, such as it was, was designed to encourage trade through a particular area. Because of the importance of class, sumptuary laws were enacted, regulating dress and housing, including allowable styles, materials. Niccolò Machiavelli in his book The Prince was one of the first authors to theorize economic policy in the form of advice and he did so by stating that princes and republics should limit their expenditures and prevent either the wealthy or the populace from despoiling the other. In this way a state would be seen as generous because it was not a burden on its citizens. The Physiocrats were 18th century French economists who emphasized the importance of productive work and their early support of free trade and deregulation influenced Adam Smith and the classical economists. Classical economics, also called classical political economy, was the form of mainstream economics of the 18th and 19th centuries
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Mainstream economics
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Mainstream economics is widely accepted economics as taught across prominent universities, in contrast to heterodox economics. It has been associated with economics and with the neoclassical synthesis, which combines neoclassical methods. In the United States, mainstream economists are not generally separated into schools, in the early 1970s, so-called fresh-water economists challenged the prevailing consensus in macroeconomics research. Key elements of their approach were that macroeconomics had to be dynamic, quantitative and they were referred to as the freshwater school since Pittsburgh, Chicago, Rochester, and Minneapolis are located nearer to the Great Lakes. They were therefore referred to as the saltwater schools. Today, mainstream economists do not, in general, identify themselves as members of a particular school, prior to the development of modern academic economics, the dominant school in Europe was mercantilism, which was rather a loose set of related ideas than an institutionalized school. From The Wealth of Nations until the Great Depression, the dominant school within the English-speaking world was classical economics, within developing economies, which formed the majority of the worlds population, various schools of development economics have been influential. The term mainstream economics came into use in the late 20th century. M. The term neoclassical synthesis itself also first appears in the 1955 edition of Samuelsons textbook, mainstream economics can be defined, as distinct from other schools of economics, by various criteria, notably by its assumptions, its methods, and its topics. A number of assumptions may underpin many mainstream models, while being rejected by some heterodox schools. These include the neoclassical assumptions of rational choice theory, a representative agent, the starting point of orthodox economic analysis is the individual. People are generally defined as units with a goal, maximisation through rational behaviour. The only differences consist of, the objective of the maximisation. From this theoretical framework, orthodox economists derive that political action should not be used to solve the problems of the economic system, instead, the solution ought to derive from an intervention on the above-mentioned maximisation objectives and constraints. It is in context that economic capitalism finds its justification. Capitalism and its arguments seem logical because orthodox economics theories think of the economy as the sum of the agents trying to maximise their utility or profit through exchange. Geoffrey Hodgson has considered the possibility that evolutionary economics and institutional economics may eventually become a new mainstream and they may use neoclassical economics as a point of departure. At least one institutionalist has argued that neoclassical economics no longer dominates a mainstream economics, a countervailing trend is the expansion of mainstream methods to such seemingly distant fields as crime, the family, law, politics, and religion
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Heterodox economics
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Heterodox economics is an umbrella term used to cover various approaches, schools, or traditions. These include anarchist, socialist, Marxian, institutional, evolutionary, Georgist, Austrian, feminist, social, post-Keynesian, Mainstream economics may be called orthodox or conventional economics by its critics. Alternatively, mainstream economics deals with the rationality–individualism–equilibrium nexus and heterodox economics is more radical in dealing with the institutions–history–social structure nexus, many mainstream economists dismiss heterodox economics as fringe and irrelevant, with little or no influence on the vast majority of academic economists in the English-speaking world. A recent review documents several prominent groups of heterodox economists since at least the 1990s as working together with an increase in coherence across different constituents. Along these lines, the International Confederation of Associations for Pluralism in Economics does not define heterodox economics and has avoided defining its scope, ICAPE defines its mission as promoting pluralism in economics. One study suggests four key factors as important to the study of economics by self-identified heterodox economists, history, natural systems, uncertainty, a number of heterodox schools of economic thought challenged the dominance of neoclassical economics after the neoclassical revolution of the 1870s. Other heterodox schools active before and during the Great Depression included Technocracy, physical scientists and biologists were the first individuals to use energy flows to explain social and economic development. by expending what is called power or energy. Austrians and post-Keynesians who dissented from this emerged as clearly defined heterodox schools. In addition, the Marxist and institutionalist schools remained active, as a consequence, some heterodox economists, such as John B. Davis, proposed that the definition of economics has to be adapted to this new. There is no single heterodox economic theory, there are many different heterodox theories in existence, what they all share, however, is a rejection of the neoclassical orthodoxy as representing the appropriate tool for understanding the workings of economic and social life. The reasons for this rejection may vary, some of the elements commonly found in heterodox critiques are listed below. One of the most broadly accepted principles of economics is the assumption of the rationality of economic agents. Indeed, for a number of economists, the notion of rational maximizing behavior is taken to be synonymous with economic behavior, when some economists studies do not embrace the rationality assumption, they are seen as placing the analyses outside the boundaries of the Neoclassical economics discipline. Neoclassical economics begins with the a priori assumptions that agents are rational and these assumptions provide the backbone for rational choice theory. Many heterodox schools are critical of the homo economicus model of behavior used in standard neoclassical model. A typical version of the critique is that of Satya Gabriel, Neoclassical economic theory is grounded in a conception of human psychology. It is assumed that all beings make economic decisions so as to maximize pleasure or utility
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Economic methodology
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Economic methodology is the study of methods, especially the scientific method, in relation to economics, including principles underlying economic reasoning. In contemporary English, methodology may reference theoretical or systematic aspects of a method, Philosophy and economics also takes up methodology at the intersection of the two subjects. Economic methodology has gone from periodic reflections of economists on method to a research field in economics since the 1970s. Economic systems Methodology of econometrics Model John Bryan Davis, D. Wade Hands, handbook of Economic Methodology, E. Elgar Hands, D. Wade, ed. The Philosophy And Methodology Of Economics, Duke University Hausman, Daniel M, the Philosophy of Economics, An Anthology. New York, Cambridge University Press, ISBN 052145929X Boland, L, the Foundations of Economic Method, London, Geo. The Methodology of Economic Model Building, Methodology after Samuelson, London, critical Economic Methodology, A Personal Odyssey, London, Routledge Boland, L. The Foundations of Economic Method, A Popperian Perspective, London, the Rhetoric of Economics, Univ of Wisconsin Press,1998 Daniel M. Hausman. Essays on Philosophy and Economic Methodology, Cambridge University Press,1992 Nell, E. J. and Errouaki, how Economic Methodology Became a Separate Science, Journal of Economic Methodology,18, 163-176. Journal of Economic Methodology - page @ EconPapers Daniel M. Hausman, Philosophy of Economics, Stanford Encyclopedia of Philosophy Milton Friedman, The Methodology of Positive Economics
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Political economy
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Political economy is a term used for studying production and trade, and their relations with law, custom, and government, as well as with the distribution of national income and wealth. Political economy originated in moral philosophy and it was developed in the 18th century as the study of the economies of states, or polities, hence the term political economy. In the late 19th century, the term came to replace political economy. Earlier, William Stanley Jevons, a proponent of mathematical methods applied to the subject, advocated economics for brevity and it is available as an area of study in certain colleges and universities. Originally, political economy meant the study of the conditions under which production or consumption within limited parameters was organized in nation-states, in that way, political economy expanded the emphasis of economics, which comes from the Greek oikos and nomos. Thus, political economy was meant to express the laws of production of wealth at the state level, the phrase économie politique first appeared in France in 1615 with the well-known book by Antoine de Montchrétien, Traité de l’economie politique. The French physiocrats, along with Adam Smith, John Stuart Mill, David Ricardo, Henry George, the worlds first professorship in political economy was established in 1754 at the University of Naples Federico II in southern Italy. The Neapolitan philosopher Antonio Genovesi was the first tenured professor, in 1763, Joseph von Sonnenfels was appointed a Political Economy chair at the University of Vienna, Austria. Thomas Malthus, in 1805, became Englands first professor of economy, at the East India Company College, Haileybury. This left the class of 1998 as the last to be graduated with a Master of Arts in Political Economy. In the United States, political economy first was taught at the College of William and Mary, an early and continuing focus of that research program is what came to be called constitutional political economy. Other traditional topics include analysis of public policy issues as economic regulation, monopoly, rent-seeking, market protection, institutional corruption. From the mid-1990s, the field has expanded, in part aided by new data sets that allow tests of hypotheses on comparative economic systems. New political economy may treat economic ideologies as the phenomenon to explain, thus, Charles S. Maier suggests that a political economy approach interrogates economic doctrines to disclose their sociological and political premises. In sum, regards economic ideas and behavior not as frameworks for analysis and this approach informs Andrew Gambles The Free Economy and the Strong State, and Colin Hays The Political Economy of New Labour. It also informs much work published in New Political Economy, a journal founded by Sheffield University scholars in 1996. International political economy is a field comprising approaches to the actions of various actors. They are also associated with the journal The Review of International Political Economy, there also is a more critical school of IPE, inspired by thinkers such as Antonio Gramsci and Karl Polanyi, two major figures are Matthew Watson and Robert W. Cox
11.
Microeconomics
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One goal of microeconomics is to analyze the market mechanisms that establish relative prices among goods and services and allocate limited resources among alternative uses. Microeconomics shows conditions under which free markets lead to desirable allocations and it also analyzes market failure, where markets fail to produce efficient results. Microeconomics also deals with the effects of economic policies on the aspects of the economy. Particularly in the wake of the Lucas critique, much of modern macroeconomic theory has been built upon microfoundations—i. e, based upon basic assumptions about micro-level behavior. Microeconomic theory typically begins with the study of a single rational, to economists, rationality means an individual possesses stable preferences that are both complete and transitive. The technical assumption that preference relations are continuous is needed to ensure the existence of a utility function, microeconomic theory progresses by defining a competitive budget set which is a subset of the consumption set. It is at point that economists make the technical assumption that preferences are locally non-satiated. Without the assumption of LNS there is no guarantee that an individual would maximize utility. With the necessary tools and assumptions in place the utility maximization problem is developed, the utility maximization problem is the heart of consumer theory. The utility maximization problem attempts to explain the action axiom by imposing rationality axioms on consumer preferences, the utility maximization problem serves not only as the mathematical foundation of consumer theory but as a metaphysical explanation of it as well. That is, the utility maximization problem is used by economists to not only explain what or how individuals make choices, the utility maximization problem is a constrained optimization problem in which an individual seeks to maximize utility subject to a budget constraint. Economists use the extreme value theorem to guarantee that a solution to the utility maximization problem exists and that is, since the budget constraint is both bounded and closed, a solution to the utility maximization problem exists. Economists call the solution to the utility maximization problem a Walrasian demand function or correspondence, the utility maximization problem has so far been developed by taking consumer tastes as the primitive. However, a way to develop microeconomic theory is by taking consumer choice as the primitive. This model of microeconomic theory is referred to as Revealed preference theory, the theory of supply and demand usually assumes that markets are perfectly competitive. This implies that there are buyers and sellers in the market and none of them have the capacity to significantly influence prices of goods. In many real-life transactions, the assumption fails because some individual buyers or sellers have the ability to influence prices, quite often, a sophisticated analysis is required to understand the demand-supply equation of a good model. However, the works well in situations meeting these assumptions
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Macroeconomics
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Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. This includes national, regional, and global economies, Macroeconomics and microeconomics, a pair of terms coined by Ragnar Frisch, are the two most general fields in economics. Macroeconomic models and their forecasts are used by governments to assist in the development, Macroeconomics encompasses a variety of concepts and variables, but there are three central topics for macroeconomic research. Macroeconomic theories usually relate the phenomena of output, unemployment, outside of macroeconomic theory, these topics are also important to all economic agents including workers, consumers, and producers. National output is the amount of everything a country produces in a given period of time. Everything that is produced and sold generates an equal amount of income, therefore, output and income are usually considered equivalent and the two terms are often used interchangeably. Output can be measured as total income, or it can be viewed from the side and measured as the total value of final goods. Macroeconomic output is measured by gross domestic product or one of the other national accounts. Economists interest in long-run increases in output study economic growth, advances in technology, accumulation of machinery and other capital, and better education and human capital all lead to increased economic output over time. However, output does not always increase consistently, business cycles can cause short-term drops in output called recessions. Economists look for macroeconomic policies that prevent economies from slipping into recessions, the amount of unemployment in an economy is measured by the unemployment rate, i. e. the percentage of workers without jobs in the labor force. The unemployment rate in the force only includes workers actively looking for jobs. People who are retired, pursuing education, or discouraged from seeking work by a lack of job prospects are excluded, unemployment can be generally broken down into several types that are related to different causes. Classical unemployment theory suggests that unemployment occurs when wages are too high for employers to be willing to hire more workers, other more modern economic theories suggest that increased wages actually decrease unemployment by creating more consumer demand. Structural unemployment covers a variety of causes of unemployment including a mismatch between workers skills and the skills required for open jobs. Large amounts of unemployment can occur when an economy is transitioning industries. While some types of unemployment may occur regardless of the condition of the economy, Okuns law represents the empirical relationship between unemployment and economic growth. The original version of Okuns law states that a 3% increase in output would lead to a 1% decrease in unemployment, a general price increase across the entire economy is called inflation
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International economics
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It seeks to explain the patterns and consequences of transactions and interactions between the inhabitants of different countries, including trade, investment and migration. International finance studies the flow of capital across international markets. International monetary economics and international macroeconomics study flows of money across countries, the economic theory of international trade differs from the remainder of economic theory mainly because of the comparatively limited international mobility of the capital and labour. In that respect, it would appear to differ in degree rather than in principle from the trade between regions in one country. Thus the methodology of international trade economics differs little from that of the remainder of economics, modern trade analysis, on the other hand, depends mainly upon empirical analysis. However, extremely restrictive assumptions have had to be adopted in order to make the problem amenable to theoretical analysis, on those assumptions, it derives a model of the trade patterns that would arise solely from international differences in the relative abundance of labour and capital. The resulting theorem states that, on those assumptions, a country with an abundance of capital would export capital-intensive products. The Stolper-Samuelson theorem, which is described as a corollary of the H-O theorem, was an early example. In its most general form it states that if the price of a good rises then the price of the factor used intensively in that industry will also rise while the price of the factor will fall. In the international context for which it was devised it means that trade lowers the real wage of the scarce factor of production. Those theories have sometimes taken to mean that trade between an industrialised country and a developing country would lower the wages of the unskilled in the industrialised country. Modern trade analysis moves away from the assumptions of the H-O theorem and explores the effects upon trade of a range of factors, including technology. It makes extensive use of econometrics to identify from the available statistics, the contributions of differences of technology have been evaluated in several such studies. The temporary advantage arising from a development of a new technology is seen as contributory factor in one study. Another econometric study also established a correlation between size and the share of exports made up of goods in the production of which there are scale economies. There is a presumption that any exchange that is freely undertaken will benefit both parties, but that does not exclude the possibility that it may be harmful to others. However Paul Samuelson has proved that it always be possible for the gainers from international trade to compensate the losers. They suggested that much of the gain arises from the growth of the most productive firms at the expense of the less productive
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Applied economics
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Applied Economics is the application of economic theory and econometrics in specific settings. As one of the two sets of fields of economics, it is characterized by the application of the core. The process often involves a reduction in the level of abstraction of this core theory and this range of approaches is indicative of what Roger Backhouse and Jeff Biddle argue is the ambiguous nature of the concept of applied economics. It is a concept with multiple meanings, among broad methodological distinctions, one source places it in neither positive nor normative economics but the art of economics, glossed as what most economists do. The origin and meanings of Applied Economics has a history going back to the writing of Say. Say wrote about applying the principles of political economy” to ascertain the rule of action of any combination of circumstances presented to us. The full title of Mill’s work is Principles of Political Economy with Some of Their Applications to Social Philosophy, john Neville Keynes was perhaps the first to use the phrase “applied economics”. This School thought that a body of theory could be established through abstract reasoning – not relying on a wide knowledge of economic facts. From this point of view applying this theory involved making allowances for some of the factors ignored in building the abstract theories, Keynes wrote about applying the political economies hypothetical laws to interpreting and explaining of “concrete industrial facts. Léon Walras, for example, planned to organize his work into volumes on pure, applied. Jaffé describes Walrass plan as involving making a distinction between that which is true, is useful, and is just, in using the term true, Walras referred to propositions that necessarily followed from the nature of things. Pure economics then involves pure logic, Applied economics involves examining ways to achieve practical goals and requires the making judgments about whether or not the logic of pure economics was relevant to the real world. Social economics also presumed pure economics, but dealt with a different range of questions than did applied economics, vilfredo Pareto follows as similar usage suggesting economics might begin by eliminating that which is inessential to examine problems as reduced to their principal and essentials. He distinguishes between pure economics from applied economics with pure economics containing only the lines of argument. Joseph Schumpeter referred to some applied fields in economics the repetition of which might help some of the issues involved in what defining applied economics involves. Pesaran and Harcourt describe Stones attempt to face the challenge of making economics into a science by combining theory and they report Stone’s proposal for the establishment of the now famous Department of Applied Economics at Cambridge. Stone argued that, The ultimate aim of applied economics is to human welfare by the investigation. It is the view of the Department that this can best be achieved by the synthesis of three types of study which now tend to be pursued in isolation, the special character of the Department’s approach to problems of the real world will lie in this attempt at systematic synthesis
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Mathematical economics
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Mathematical economics is the application of mathematical methods to represent theories and analyze problems in economics. An advantage claimed for the approach is its allowing formulation of theoretical relationships with rigor, generality, Mathematics allows economists to form meaningful, testable propositions about wide-ranging and complex subjects which could less easily be expressed informally. Further, the language of mathematics allows economists to make specific, much of economic theory is currently presented in terms of mathematical economic models, a set of stylized and simplified mathematical relationships asserted to clarify assumptions and implications. This rapid systematizing of economics alarmed critics of the discipline as well as some noted economists, the use of mathematics in the service of social and economic analysis dates back to the 17th century. Then, mainly in German universities, a style of instruction emerged which dealt specifically with detailed presentation of data as it related to public administration, gottfried Achenwall lectured in this fashion, coining the term statistics. At the same time, a group of professors in England established a method of reasoning by figures upon things relating to government. Pettys use of detailed numerical data would influence statisticians and economists for some time, the mathematization of economics began in earnest in the 19th century. Most of the analysis of the time was what would later be called classical economics. Subjects were discussed and dispensed with through algebraic means, but calculus was not used, more importantly, until Johann Heinrich von Thünens The Isolated State in 1826, economists did not develop explicit and abstract models for behavior in order to apply the tools of mathematics. Thünens model of farmland use represents the first example of marginal analysis, Thünens work was largely theoretical, but he also mined empirical data in order to attempt to support his generalizations. In comparison to his contemporaries, Thünen built economic models and tools and these included W. S. Jevons who presented paper on a general mathematical theory of political economy in 1862, providing an outline for use of the theory of marginal utility in political economy. In 1871, he published The Principles of Political Economy, declaring that the subject as science must be simply because it deals with quantities. Jevons expected the only collection of statistics for price and quantities would permit the subject as presented to become an exact science, others preceded and followed in expanding mathematical representations of economic problems. At the time, it was thought that utility was quantifiable, Cournot, Walras and Francis Ysidro Edgeworth are considered the precursors to modern mathematical economics. Cournot, a professor of mathematics, developed a treatment in 1838 for duopoly—a market condition defined by competition between two sellers. This treatment of competition, first published in Researches into the Mathematical Principles of Wealth, is referred to as Cournot duopoly and it is assumed that both sellers had equal access to the market and could produce their goods without cost. Further, it assumed that both goods were homogeneous, each seller would vary her output based on the output of the other and the market price would be determined by the total quantity supplied. The profit for each firm would be determined by multiplying their output, Cournots contributions to the mathematization of economics would be neglected for decades, but eventually influenced many of the marginalists
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Econometrics
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Econometrics is the application of statistical methods to economic data and is described as the branch of economics that aims to give empirical content to economic relations. More precisely, it is the analysis of actual economic phenomena based on the concurrent development of theory and observation. An introductory economics textbook describes econometrics as allowing economists to sift through mountains of data to extract simple relationships, the first known use of the term econometrics was by Polish economist Paweł Ciompa in 1910. Ragnar Frisch is credited with coining the term in the sense in which it is used today, the basic tool for econometrics is the multiple linear regression model. Econometric theory uses statistical theory and mathematical statistics to evaluate and develop econometric methods, econometricians try to find estimators that have desirable statistical properties including unbiasedness, efficiency, and consistency. Applied econometrics uses theoretical econometrics and real-world data for assessing economic theories, developing models, analyzing economic history. The basic tool for econometrics is the linear regression model. In modern econometrics, other tools are frequently used. Estimating a linear regression on two variables can be visualized as fitting a line through points representing paired values of the independent and dependent variables. For example, consider Okuns law, which relates GDP growth to the unemployment rate, the unknown parameters β0 and β1 can be estimated. Here β1 is estimated to be −1.77 and β0 is estimated to be 0.83 and this means that if GDP growth increased by one percentage point, the unemployment rate would be predicted to drop by 1.77 points. The model could then be tested for statistical significance as to whether an increase in growth is associated with a decrease in the unemployment, as hypothesized. If the estimate of β1 were not significantly different from 0, the variance in a prediction of the dependent variable as a function of the independent variable is given in polynomial least squares. Econometric theory uses statistical theory and mathematical statistics to evaluate and develop econometric methods, econometricians try to find estimators that have desirable statistical properties including unbiasedness, efficiency, and consistency. Ordinary least squares is used for estimation since it provides the BLUE or best linear unbiased estimator given the Gauss-Markov assumptions. Estimators that incorporate prior beliefs are advocated by those who favor Bayesian statistics over traditional, classical or frequentist approaches, applied econometrics uses theoretical econometrics and real-world data for assessing economic theories, developing econometric models, analyzing economic history, and forecasting. Econometrics may use standard statistical models to study economic questions, but most often they are with observational data, rather than in controlled experiments. In this, the design of studies in econometrics is similar to the design of studies in other observational disciplines, such as astronomy, epidemiology, sociology
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Economic system
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An economic system is a system of production, resource allocation, and distribution of goods and services within a society or a given geographic area. It includes the combination of the institutions, agencies, entities, decision-making processes. As such, a system is a type of social system. The mode of production is a related concept, all economic systems have three basic questions to ask, what to produce, how to produce and in what quantities, and who receives the output of production. The study of systems includes how these various agencies and institutions are linked to one another. The analysis of economic systems traditionally focused on the dichotomies and comparisons between market economies and planned economies, and on the distinctions between capitalism and socialism, subsequently, the categorization of economic systems expanded to include other topics and models that do not conform to the traditional dichotomy. Today the dominant form of organization at the world level is based on market-oriented mixed economies. Economic systems is the category in the Journal of Economic Literature classification codes that includes the study of such systems, there are multiple components to economic systems. Decision-making structures of an economy determine the use of inputs, distribution of output, the level of centralization in decision-making. Decisions might be carried out by industrial councils, by a government agency, in one view, every economic system represents an attempt to solve three fundamental and interdependent problems, What goods and services shall be produced, and in what quantities. How shall goods and services be produced and that is, by whom and with what resources and technologies. For whom shall goods and services be produced and that is, who is to enjoy the benefits of the goods and services and how is the total product to be distributed among individuals and groups in the society. Thus every economy is a system that allocates resources for exchange, the system is stabilized through a combination of threat and trust, which are the outcome of institutional arrangements. The means of production may be owned privately, by the state, a decision-making system, this determines who is eligible to make decisions over economic activities. Economic agents with decision-making powers can enter into binding contracts with one another, a coordination mechanism, this determines how information is obtained and used in decision-making. An incentive system, this induces and motivates economic agents to engage in productive activities and it can be based on either material reward or moral suasion. The incentive system may encourage specialization and the division of labour, organizational form, there are two basic forms of organization, actors and regulators. Economic actors include households, work gangs and production teams, firms, joint-ventures, economically regulative organizations are represented by the state and market authorities, the latter may be private or public entities
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Economic growth
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Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in gross domestic product, or real GDP. Growth is usually calculated in real terms – i. e. inflation-adjusted terms – to eliminate the effect of inflation on the price of goods produced. Measurement of economic growth uses national income accounting, since economic growth is measured as the annual percent change of gross domestic product, it has all the advantages and drawbacks of that measure. The rate of economic growth refers to the annual rate of growth in GDP between the first and the last year over a period of time. Implicitly, this rate is the trend in the average level of GDP over the period. An increase in economic growth caused by efficient use of inputs is referred to as intensive growth. GDP growth caused only by increases in the amount of available for use is called extensive growth. The economic growth rate is calculated from data on GDP estimated by countries´statistical agencies, the rate of growth of GDP/capita is calculated from data on GDP and people for the initial and final periods included in the analysis. The rate of change of GDP/population is the sum of the rates of change of four variables plus their cross products. Increases in labor productivity have historically been the most important source of real per capita economic growth, increases in productivity lower the real cost of goods. Over the 20th century the price of many goods fell by over 90%. Economic growth has traditionally been attributed to the accumulation of human and physical capital, the rapid economic growth that occurred during the Industrial Revolution was remarkable because it was in excess of population growth, providing an escape from the Malthusian trap. Countries that industrialized eventually saw their population growth slow down, a known as the demographic transition. Increases in productivity are the factor responsible for per capita economic growth – this has been especially evident since the mid-19th century. Most of the growth in the 20th century was due to increased output per unit of labor, materials, energy. The balance of the growth in output has come from using more inputs, both of these changes increase output. The increased output included more of the goods produced previously and new goods
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Market (economics)
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A market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers and it can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and allocation of resources in a society, Markets allow any trade-able item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services, Markets can also be worldwide, for example the global diamond trade. National economies can be classified, for example as developed markets or developing markets, in mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services, with or without money, is a transaction, a major topic of debate is how much a given market can be considered to be a free market, that is free from government intervention. However it is not always clear how the allocation of resources can be improved since there is always the possibility of government failure, a market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers and it can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enables the distribution and allocation of resources in a society, Markets allow any trade-able item to be evaluated and priced. A market sometimes emerges more or less spontaneously but is often constructed deliberately by human interaction in order to enable the exchange of rights of services. Markets of varying types can spontaneously arise whenever a party has interest in a good or service that other party can provide. Hence there can be a market for cigarettes in correctional facilities, another for chewing gum in a playground, and yet another for contracts for the future delivery of a commodity. Markets vary in form, scale, location, and types of participants, as well as the types of goods and services traded, nevertheless, violence and they apply the market dynamics to facilitate information aggregation. However, market prices may be distorted by a seller or sellers with monopoly power, such price distortions can have an adverse effect on market participants welfare and reduce the efficiency of market outcomes. Also, the level of organization and negotiating power of buyers and sellers markedly affects the functioning of the market. Markets are a system, and systems have structure, the structure of a well-functioning market is defined by the theory of perfect competition. Market failures are often associated with time-inconsistent preferences, information asymmetries, non-perfectly competitive markets, principal–agent problems, externalities, among the major negative externalities which can occur as a side effect of production and market exchange, are air pollution and environmental degradation. There exists a popular thought, especially among economists, that markets would have a structure of a perfect competition
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Experimental economics
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Experimental economics is the application of experimental methods to study economic questions. Data collected in experiments are used to effect size, test the validity of economic theories. Economic experiments usually use cash to motivate subjects, in order to mimic real-world incentives, experiments are used to help understand how and why markets and other exchange systems function as they do. Experimental economics have also expanded to understand institutions and the law, a fundamental aspect of the subject is design of experiments. Experiments may be conducted in the field or in laboratory settings, variants of the subject outside such formal confines include natural and quasi-natural experiments. An alternative approach with experimental dimensions is agent-based computational modeling, coordination games are games with multiple pure strategy Nash equilibria. Deductive selection principles are those that allow predictions based on the properties of the game alone, inductive selection principles are those that allow predictions based on characterizations of dynamics. Under some conditions at least groups of subjects can coordinate even complex non-obvious asymmetric Pareto-best equilibria. This is even though all subjects decide simultaneously and independently without communication, the way by which this happens is not yet fully understood. In games of two players or more, the subjects often form beliefs about what actions the other subjects are taking and this is known as belief learning. Subjects also tend to make the decisions that have rewarded them with high payoffs in the past. This is known as reinforcement learning, until the 1990s, simple adaptive models, such as Cournot competition or fictitious play, were generally used. In the mid-1990s, Alvin E. Roth and Ido Erev demonstrated that reinforcement learning can make predictions in experimental games. Criticisms of EWA include overfitting due to many parameters, lack of generality over games, overfitting is addressed by estimating parameters on some of the experimental periods or experimental subjects and forecasting behavior in the remaining sample. Modern experimental economists have done much notable work recently, roberto Weber has raised issues of learning without feedback. David Cooper and John Kagel have investigated types of learning over similar strategies, Ido Erev and Greg Barron have looked at learning in cognitive strategies. Dale Stahl has characterized learning over decision making rules, Charles A. Holt has studied logit learning in different kinds of games, including games with multiple equilibria. Wilfred Amaldoss has looked at interesting applications of EWA in marketing, amnon Rapoport, Jim Parco and Ryan Murphy have investigated reinforcement-based adaptive learning models in one of the most celebrated paradoxes in game theory known as the centipede game
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Computational economics
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Computational economics is a research discipline at the interface of computer science, economics, and management science. Computational economics uses computer-based economic modeling for the solution of analytically and statistically formulated economic problems, a research program, to that end, is agent-based computational economics, the computational study of economic processes, including whole economies, as dynamic systems of interacting agents. As such, it is an adaptation of the complex adaptive systems paradigm. Here the agent refers to computational objects modeled as interacting according to rules, agents can represent social, biological, and/or physical entities. Starting from initial conditions determined by the modeler, an ACE model develops forward through time driven solely by agent interactions, the ultimate scientific objective of the method is to. Computational solution tools include for example software for carrying out various matrix operations, for a repository of public-domain computational solution tools, visit here
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Game theory
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Game theory is the study of mathematical models of conflict and cooperation between intelligent rational decision-makers. Game theory is used in economics, political science, and psychology, as well as logic, computer science. Originally, it addressed zero-sum games, in one persons gains result in losses for the other participants. Today, game theory applies to a range of behavioral relations, and is now an umbrella term for the science of logical decision making in humans, animals. Modern game theory began with the idea regarding the existence of equilibria in two-person zero-sum games. Von Neumanns original proof used Brouwer fixed-point theorem on continuous mappings into compact convex sets and his paper was followed by the 1944 book Theory of Games and Economic Behavior, co-written with Oskar Morgenstern, which considered cooperative games of several players. The second edition of this provided an axiomatic theory of expected utility. This theory was developed extensively in the 1950s by many scholars, Game theory was later explicitly applied to biology in the 1970s, although similar developments go back at least as far as the 1930s. Game theory has been recognized as an important tool in many fields. With the Nobel Memorial Prize in Economic Sciences going to game theorist Jean Tirole in 2014, John Maynard Smith was awarded the Crafoord Prize for his application of game theory to biology. Early discussions of examples of two-person games occurred long before the rise of modern, the first known discussion of game theory occurred in a letter written by Charles Waldegrave, an active Jacobite, and uncle to James Waldegrave, a British diplomat, in 1713. In this letter, Waldegrave provides a mixed strategy solution to a two-person version of the card game le Her. James Madison made what we now recognize as an analysis of the ways states can be expected to behave under different systems of taxation. In 1913 Ernst Zermelo published Über eine Anwendung der Mengenlehre auf die Theorie des Schachspiels and it proved that the optimal chess strategy is strictly determined. This paved the way for more general theorems, the Danish mathematician Zeuthen proved that the mathematical model had a winning strategy by using Brouwers fixed point theorem. In his 1938 book Applications aux Jeux de Hasard and earlier notes, Borel conjectured that non-existence of mixed-strategy equilibria in two-person zero-sum games would occur, a conjecture that was proved false. Game theory did not really exist as a field until John von Neumann published a paper in 1928. Von Neumanns original proof used Brouwers fixed-point theorem on continuous mappings into compact convex sets and his paper was followed by his 1944 book Theory of Games and Economic Behavior co-authored with Oskar Morgenstern
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Operations research
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Operations research, or operational research in British usage, is a discipline that deals with the application of advanced analytical methods to help make better decisions. Further, the operational analysis is used in the British military, as an intrinsic part of capability development, management. In particular, operational analysis forms part of the Combined Operational Effectiveness and Investment Appraisals and it is often considered to be a sub-field of applied mathematics. The terms management science and decision science are used as synonyms. Operation research is concerned with determining the maximum or minimum of some real-world objective. Originating in military efforts before World War II, its techniques have grown to concern problems in a variety of industries, nearly all of these techniques involve the construction of mathematical models that attempt to describe the system. Because of the computational and statistical nature of most of these fields, OR also has ties to computer science. In the decades after the two wars, the techniques were more widely applied to problems in business, industry. Early work in research was carried out by individuals such as Charles Babbage. Percy Bridgman brought operational research to bear on problems in physics in the 1920s, modern operational research originated at the Bawdsey Research Station in the UK in 1937 and was the result of an initiative of the stations superintendent, A. P. Rowe. Rowe conceived the idea as a means to analyse and improve the working of the UKs early warning radar system, initially, he analysed the operating of the radar equipment and its communication networks, expanding later to include the operating personnels behaviour. This revealed unappreciated limitations of the CH network and allowed action to be taken. Scientists in the United Kingdom including Patrick Blackett, Cecil Gordon, Solly Zuckerman, other names for it included operational analysis and quantitative management. During the Second World War close to 1,000 men and women in Britain were engaged in operational research, about 200 operational research scientists worked for the British Army. Patrick Blackett worked for different organizations during the war. In 1941, Blackett moved from the RAE to the Navy, after first working with RAF Coastal Command, in 1941, blacketts team at Coastal Commands Operational Research Section included two future Nobel prize winners and many other people who went on to be pre-eminent in their fields. They undertook a number of analyses that aided the war effort. Convoys travel at the speed of the slowest member, so small convoys can travel faster and it was also argued that small convoys would be harder for German U-boats to detect
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Agricultural economics
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Agronomics was a branch of economics that specifically dealt with land usage. It focused on maximizing the crop yield while maintaining a good soil ecosystem, throughout the 20th century the discipline expanded and the current scope of the discipline is much broader. Agricultural economics today includes a variety of applied areas, having considerable overlap with conventional economics, Agricultural economists have made substantial contributions to research in economics, econometrics, development economics, and environmental economics. Agricultural economics influences food policy, agricultural policy, and environmental policy, Economics has been defined as the study of resource allocation under scarcity. Agronomics, or the application of methods to optimizing the decisions made by agricultural producers. The field of economics can be traced out to works on land economics. Henry Charles Taylor was the greatest contributor with the establishment of the Department of Agricultural Economics at Wisconsin in 1909, another contributor,1979 Nobel Economics Prize winner Theodore Schultz, was among the first to examine development economics as a problem related directly to agriculture. The discipline was closely linked to applications of mathematical statistics and made early. The farm sector is frequently cited as a example of the perfect competition economic paradigm. In Asia, agricultural economics was offered first by the University of the Philippines Los Baños Department of Agricultural Economics in 1919, in addition to economists long-standing emphasis on the effects of prices and incomes, researchers in this field have studied how information and quality attributes influence consumer behavior. Agricultural economics research has addressed diminishing returns in agricultural production, as well as farmers costs, much research has applied economic theory to farm-level decisions. Development economics is concerned with the improvement of living conditions in low-income countries. The International Association of Agricultural Economists is a professional association. The association publishes the journal Agricultural Economics, there also is a European Association of Agricultural Economists, an African Association of Agricultural Economists and an Australian Agricultural and Resource Economics Society. Substantial work in agricultural economics internationally is conducted by the International Food Policy Research Institute, the AAEA publishes the American Journal of Agricultural Economics and Applied Economic Perspectives and Policy. Careers in agricultural economics require at least a degree. A2011 study by the Georgetown Center on Education and the Workforce rated agricultural economics tied for 8th out of 171 fields in terms of employability, evenson, Robert E. and Prabhu Pingali. Agrarian law Agrarian reform Agribusiness Agricultural value chain C. S, agency for International Development, Bureau for Economic Growth, Agriculture, and Trade U. S
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Behavioral economics
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Risk tolerance is a crucial factor in personal financial decision making. Risk tolerance is defined as individuals willingness to engage in a financial activity whose outcome is uncertain, Behavioral economics is primarily concerned with the bounds of rationality of economic agents. Behavioral models typically integrate insights from psychology, neuroscience and microeconomic theory, in so doing, these behavioral models cover a range of concepts, methods, the study of behavioral economics includes how market decisions are made and the mechanisms that drive public choice. The use of the term behavioral economics in U. S. scholarly papers has increased in the past few years, there are three prevalent themes in behavioral finances, Heuristics, People often make decisions based on approximate rules of thumb and not strict logic. Framing, The collection of anecdotes and stereotypes that make up the mental emotional filters individuals rely on to understand and respond to events, Market inefficiencies, These include mis-pricings and non-rational decision making. During the classical period of economics, microeconomics was closely linked to psychology and they developed the concept of homo economicus, whose psychology was fundamentally rational. However, many important neo-classical economists employed more sophisticated psychological explanations, including Francis Edgeworth, Vilfredo Pareto, Economic psychology emerged in the 20th century in the works of Gabriel Tarde, George Katona, and Laszlo Garai. Expected utility and discounted utility models began to gain acceptance, generating testable hypotheses about decision-making given uncertainty and intertemporal consumption, in the 1960s cognitive psychology began to shed more light on the brain as an information processing device. In mathematical psychology, there is a longstanding interest in the transitivity of preference, prospect theory has two stages, an editing stage and an evaluation stage. In the editing stage, risky situations are simplified using various heuristics of choice, outcomes are then compared to the reference point and classified as gains if greater than the reference point and losses if less than the reference point. Loss aversion, Losses bite more than equivalent gains, in their 1979 paper published in Econometrica, Kahneman and Tversky found the median coefficient of loss aversion to be about 2.25, i. e. losses bite about 2.25 times more than equivalent gains. Prospect theory is able to explain everything that the two main existing decision theories—expected utility theory and rank dependent utility theory—can explain, prospect theory has been used to explain a range of phenomena that existing decision theories have great difficulty in explaining. These include backward bending labor supply curves, asymmetric price elasticities, tax evasion, co-movement of stock prices and consumption, in 1992, in the Journal of Risk and Uncertainty, Kahneman and Tversky gave their revised account of prospect theory that they called cumulative prospect theory. The new theory eliminated the editing phase in prospect theory and focused just on the evaluation phase and its main feature was that it allowed for non-linear probability weighting in a cumulative manner, which was originally suggested in John Quiggins rank dependent utility theory. Psychological traits such as overconfidence, projection bias, and the effects of limited attention are now part of the theory, Behavioral economics has also been applied to intertemporal choice. Intertemporal choice is defined as making a decision and having the effects of such decision happening in a different time, hyperbolic discounting describes the tendency to discount outcomes in the near future more than for outcomes in the far future. Other branches of behavioral economics enrich the model of the utility function without implying inconsistency in preferences, ernst Fehr, Armin Falk, and Matthew Rabin studied fairness, inequity aversion, and reciprocal altruism, weakening the neoclassical assumption of perfect selfishness. This work is particularly applicable to wage setting, Behavioral economics caught on among the general public with the success of books such as Dan Arielys Predictably Irrational
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Business economics
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A professional focus of the journal Business Economics has been expressed as providing practical information for people who apply economics in their jobs. Business economics is concerned with issues and problems related to business organization, management. The term business economics is used in a variety of ways, sometimes it is used as synonymously with industrial economics/industrial organisation, managerial economics, and economics for business. Still, there may be differences in the usage of economics for business. Economics for business looks at the principles of economics but focuses on applying these economic principles to the real world of business. Managerial economics is the application of methods in the managerial decision-making process. Many universities offer courses in economics and offer a range of interpretations as to the meaning of the word. The program at Harvard University uses economic methods to practical aspects of business, including business administration, management. The University of Miami defines business economics as involving the study of how we use our resources for the production, distribution, and consumption of goods and services. La Trobe University of Melbourne, Australia associates business economics with the process of demand, supply and equilibrium coordinating the behaviour of individuals, also, business economics extends to government policy, economic variables and international factors which influence business and competition
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Cultural economics
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Cultural economics is the branch of economics that studies the relation of culture to economic outcomes. Here, culture is defined by shared beliefs and preferences of respective groups, programmatic issues include whether and how much culture matters as to economic outcomes and what its relation is to institutions. Applications include the study of religion, social norms, social identity, fertility, beliefs in redistributive justice, ideology, hatred, terrorism, trust, and the culture of economics. Methods include case studies and theoretical and empirical modeling of cultural transmission within, in 2013 Said E. Dawlabani added the value systems approach to the cultural emergence aspect of macroeconomics. Cultural economics develops from how wants and tastes are formed in society and this is partly due to nurture aspects, or what type of environment one is raised in, as it is the internalization of one’s upbringing that shapes their future wants and tastes. Acquired tastes can be thought of as an example of this, a key thought area that separates the development of cultural economics from traditional economics is a difference in how individuals arrive at their decisions. These trajectories consist of regularities, which have built up throughout the years. Economists have also started to look at cultural economics with a thinking approach. In this approach, the economy and culture are each viewed as a system where “interaction and feedback effects were acknowledged, and where in particular the dynamic were made explicit. ”In this sense, the interdependencies of culture. The book explores the intersections of multiple disciplines such as development, organizational behavior. The advancing pace of new technology is transforming how the public consumes and shares culture, the cultural economic field has seen great growth with the advent of online social networking which has created productivity improvements in how culture is consumed. New technologies have also lead to cultural convergence where all kinds of culture can be accessed on a single device, throughout their upbringing, younger persons of the current generation are consuming culture faster than their parents ever did, and through new mediums. The smartphone is an example of this where books, music, talk, artwork. This field has seen growth through the advent of new economic studies that have put on a cultural lens. For example, a recent study on Europeans living with their families into adulthood was conducted by Paola Sapienza, the study found that those of Southern European descent tend to live at home with their families longer than those of Northern European descent. Sapienzas work is an example of how the growth of economics is beginning to spread across the field. An area that cultural economics has a presence in is sustainable development. Sustainable development has been defined as “…development that meets the needs of the present without compromising the ability of future generations to meet their own needs…”, culture plays an important role in this as it can determine how people view preparing for these future generations
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Demographic economics
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Other subfields include measuring value of life and the economics of the elderly and the handicapped and of gender, race, minorities, and non-labor discrimination. In coverage and subfields, it complements labor economics and implicates a variety of other economics subjects, the Journal of Economic Literature classification codes are a way of categorizing subjects in economics. There, Demographic Economics is paired with Labor Economics as one of 19 primary classifications at JEL, J. Related, John Eatwell, Murray Milgate, social Economics, The New Palgrave, pp. v-vi. Demography, The New Palgrave, A Dictionary of Economics, v.1, demography and the Economy, University of Chicago Press. The Ultimate Resource 2, rev. and expanded, julian Simon and the Population Growth Debate, Population and Development Review,24, pp. 317-327. The Economics Of Population, Key Modern Writings, the Economics of Population, Classic Writings. Description and scroll to chapter-preview links, the Population Obstacle to Economic Betterment, American Economic Review,41, pp. 343-354. The Economist and the Population Question, American Economic Review,56, demography — Scope and links to issue contents & abstracts. Journal of Population Economics — Aims and scope and 20th Anniversary statement,2006, Population and Development Review — Aims and abstract & supplement links. Population Bulletin — Each issue on a current population topic, Review of Economics of the Household
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Development economics
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Development economics is a branch of economics which deals with economic aspects of the development process in low-income countries. Development economics involves the creation of theories and methods that aid in the determination of policies and practices, unlike in many other fields of economics, approaches in development economics may incorporate social and political factors to devise particular plans. Also unlike many other fields of economics, there is no consensus on what students should know, different approaches may consider the factors that contribute to economic convergence or non-convergence across households, regions, and countries. The earliest Western theory of development economics was mercantilism, which developed in the 17th century, earlier theories had given little attention to development. For example, Scholasticism the dominant school of thought during medieval feudalism, emphasized reconciliation with Christian theology and ethics, the 16th- and 17th-century School of Salamanca, credited as the earliest modern school of economics, likewise did not address development specifically. Mercantilism held that a nations prosperity depended on its supply of capital and it emphasised the maintenance of a high positive trade balance as a means of accumulating this bullion. To achieve a trade balance, protectionist measures such as tariffs. Mercantilist development theory also advocated colonialism, in France, mercantilist policy is most associated with 17th-century finance minister Jean-Baptiste Colbert, whose policies proved influential in later American development. Mercantilist ideas continue in the theories of nationalism and neomercantilism. A significant difference from mercantilism was the de-emphasis on colonies, in favor of a focus on domestic production, the names most associated with 19th-century economic nationalism are the American Alexander Hamilton, the German-American Friedrich List, and the American Henry Clay. Hamiltons 1791 Report on Manufactures, his opus, is the founding text of the American System. The key authors are Paul Rosenstein-Rodan, Kurt Mandelbaum, Ragnar Nurkse, only after the war did economists turn their concerns towards Asia, Africa and Latin America. At the heart of these studies, by such as Simon Kuznets and W. Arthur Lewis was an analysis of not only economic growth. The linear-stages-of-growth model posits that there are a series of five stages of development which all countries must go through during the process of development. Such theories have been criticized for not recognizing that, while necessary and that is to say that this early and simplistic theory failed to account for political, social and institutional obstacles to development. Furthermore, this theory was developed in the years of the Cold War and was largely derived from the successes of the Marshall Plan. This has led to the criticism that the theory assumes that the conditions found in developing countries are the same as those found in post-WWII Europe. There are two forms of structural-change theory, W
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Economics of digitization
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The economics of digitization is the field of economics that studies how digitization affects markets and how digital data can be used to study economics. Digitization is the process by which technology lowers the costs of storing, sharing and this process has changed how consumers behave, how industrial activity is organized, and how governments operate. The economics of digitization exists as a field of economics for two reasons. First, new models are needed because many traditional assumptions about information no longer holds in a digitized world. Second, the new types of data generated by digitization require new methods to analyze, Research in the economics of digitization touches on several fields of economics including industrial organization, labor economics, and intellectual property. Consequently, many of the contributions to the economics of digitization have also found a home in these fields. An underlying theme in much of the work in the field is that government regulation of copyright, security. For example, information goods, such as articles and movies, now have zero marginal costs of production. This has made the redistribution without permission common and has increased competition between providers of information goods, Research in the economics of digitization studies how policy should adapt in response to these changes. The Internet is a network which is operated by a variety of participants. The Internet has come to mean a combination of standards, networks, the emergence of the Internet coincided with the growth of a new type of organizational structure, the standards committee. Standards committees are responsible for designing critical standards for the Internet such as TCP/IP, HTML and these committees are composed of representatives from firms, academia, and non-profit organizations. Their goal is to make decisions that advance technology while retaining interoperability between Internet components, economists are interested in how these organizational structures make decisions and whether those decisions are optimal. The commercial supply of Internet access began when the National Science Foundation removed restrictions for using the Internet for commercial purposes, during the 90s internet access was provided by numerous regional and national Internet service providers. However, by 2014, the provision of high-speed broadband access was consolidated, about 80% of Americans can only buy 25Mbit/s from one provider and a majority only have a choice of two providers for 10Mbit/s service. Economists are particularly interested by competition and network effects within this industry, furthermore, the availability of broadband may affect other economic outcomes such as the relative wages of skilled and unskilled workers. A key issue in the economics of digitization is the value of Internet-based services. The motivation for this question is two-fold, first, economists are interested in understanding digitization related policies such as network infrastructure investment and subsidies for Internet access
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Ecological economics
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Ecological economics was founded in the 1980s as a modern discipline in the works of and interactions between various European and American academics. The related field of economics is, in general, a more politically applied form of the subject. According to ecological economist Malte Faber, ecological economics is defined by its focus on nature, justice, issues of intergenerational equity, irreversibility of environmental change, uncertainty of long-term outcomes, and sustainable development guide ecological economic analysis and valuation. Positional analysis, which attempts to time and justice issues, is proposed as an alternative. Ecological economics shares many of its perspectives with feminist economics, including the focus on sustainability, nature, justice, the first principles, deriving from the radiochemist FA Soddy, were laid out in his 1926 book Wealth, Money and Debt in 1926. Early modern interest in ecology and economics dates back to the 1940s in the work of K. William Kapp and Karl Polanyi, however, the first organized meetings of modern ecological economists occurred in the 1980s. These began in 1982, at the instigation of Lois Banner, most were ecosystem ecologists or mainstream environmental economists, with the exception of Daly. In 1987, Daly and Costanza edited an issue of Ecological Modeling to test the waters, a book entitled Ecological Economics, by Juan Martinez-Alier, was published later that year. 1989 saw the foundation of the International Society for Ecological Economics and publication of its journal, Ecological Economics, Robert Costanza was the first president of the society and first editor of the journal, currently edited by Richard Howarth. European conceptual founders include Nicholas Georgescu-Roegen, K. William Kapp, some key concepts of what is now ecological economics are evident in the writings of E. F. Other figures include ecologists C. S. Holling, H. T, odum and Robert Costanza, biologist Gretchen Daily and physicist Robert Ayres. CUNY geography professor David Harvey explicitly added ecological concerns to political economic literature and this parallel development in political economy has been continued by analysts such as sociologist John Bellamy Foster. The antecedents can be traced back to the Romantics of the 19th century as well as some Enlightenment political economists of that era, concerns over population were expressed by Thomas Malthus, while John Stuart Mill predicted the desirability of the stationary state of an economy. Mill thereby anticipated later insights of modern ecological economists, but without having had their experience of the social and ecological costs of the Post–World War II economic expansion. As Martinez-Alier explores in his book the debate on energy in systems can also be traced into the 19th century e. g. Nobel prize-winning chemist. His magnum opus, The Entropy Law and the Economic Process, has been highly influential, in addition, the journal Ecological Economics has itself been criticized for swamping the field with mainstream economics. Once consumed, natural inputs pass out of the economy as pollution, the sink function describes an environments ability to absorb and render harmless waste and pollution, when waste output exceeds the limit of the sink function, long-term damage occurs. Some persistent pollutants, such as organic pollutants and nuclear waste are absorbed very slowly or not at all
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Education economics
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Economics distinguishes in addition to physical capital another form of capital that is no less critical as a means of production – human capital. Investments in human capital entail an investment cost, just as any investment does, typically in European countries most education expenditure takes the form of government consumption, although some costs are also borne by individuals. These investments can be rather costly, EU governments spent between 3% and 8% of GDP on education in 2005, the average being 5%. It has been estimated that the costs, including opportunity costs. Including opportunity costs investments in education can be estimated to have been around 10% of GDP in the EU countries in 2005, in comparison investments in physical capital were 20% of GDP. Thus the two are of similar magnitude, human capital in the form of education shares many characteristics with physical capital. Both require an investment to create and, once created, both have economic value, physical capital earns a return because people are willing to pay to use a piece of physical capital in work as it allows them to produce more output. To measure the value of physical capital, we can simply measure how much of a return it commands in the market. In the case of human capital calculating returns is more complicated – after all, to get around this problem the returns to human capital are generally inferred from differences in wages among people with different levels of education. Thus someone with 12 years of schooling can be expected to earn, economy-wide, the effect of human capital on incomes has been estimated to be rather significant, 65% of wages paid in developed countries is payments to human capital and only 35% to raw labor. The higher productivity of well-educated workers is one of the factors that explain higher GDPs and, therefore, a strong correlation between GDP and education is clearly visible among the countries of the world, as is shown by the upper left figure. It is less clear, however, how much of a high GDP is explained by education, after all, it is also possible that rich countries can simply afford more education. To distinguish the part of GDP explained with education from other causes and this was based on the above-mentioned calculations of Hall and Jones on the returns on education. Finally, the matter of externalities should be considered, usually when speaking of externalities one thinks of the negative effects of economic activities that are not included in market prices, such as pollution. However, there are also positive externalities – that is, positive effects of which someone can benefit without having to pay for it. Education bears with it major positive externalities, giving one person more education raises not only his or her output, educated workers can bring new technologies, methods and information to the consideration of others. They can teach things to others and act as an example, the positive externalities of education include the effects of personal networks and the roles educated workers play in them. Positive externalities from human capital are one explanation for why governments are involved in education, the dominant model of the demand for education is based on human capital theory
33.
Environmental economics
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Environmental economics is a sub-field of economics that is concerned with environmental issues. Particular issues include the costs and benefits of alternative policies to deal with air pollution, water quality, toxic substances, solid waste. Environmental economics is distinguished from ecological economics in that ecological economics emphasizes the economy as a subsystem of the ecosystem with its focus upon preserving natural capital, central to environmental economics is the concept of market failure. Market failure means that markets fail to allocate resources efficiently, as stated by Hanley, Shogren, and White in their textbook Environmental Economics, A market failure occurs when the market does not allocate scarce resources to generate the greatest social welfare. A wedge exists between what a person does given market prices and what society might want him or her to do to protect the environment. Such a wedge implies wastefulness or economic inefficiency, resources can be reallocated to make at least one person better off without making anyone worse off. Common forms of failure include externalities, non-excludability and non-rivalry. An externality exists when a person makes a choice that affects people in a way that is not accounted for in the market price. An externality can be positive or negative, but is associated with negative externalities in environmental economics. For instance, water seepage in residential buildings happen in upper floor affect the lower floor, or a firm emitting pollution will typically not take into account the costs that its pollution imposes on others. As a result, pollution may occur in excess of the efficient level. When it is too costly to some people from access to an environmental resource. In either case of non-exclusion, market allocation is likely to be inefficient and these challenges have long been recognized. Hardins concept of the tragedy of the commons popularized the challenges involved in non-exclusion and common property, the basic problem is that if people ignore the scarcity value of the commons, they can end up expending too much effort, over harvesting a resource. Hardin theorizes that in the absence of restrictions, users of a resource will use it more than if they had to pay for it and had exclusive rights. See, however, Ostroms work on how people using real common property resources have worked to establish self-governing rules to reduce the risk of the tragedy of the commons. The mitigation of climate change effects is an example of a public good and this is a public good since the risks of climate change are both non-rival and non-excludable. Such efforts are non-rival since climate mitigation provided to one does not reduce the level of mitigation that anyone else enjoys and they are non-excludable actions as they will have global consequences from which no one can be excluded
34.
Evolutionary economics
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Evolutionary economics is part of mainstream economics as well as a heterodox school of economic thought that is inspired by evolutionary biology. The evidence suggests that it could be adaptive efficiency that defines economic efficiency, mainstream economic reasoning begins with the postulates of scarcity and rational agents, with the rational choice for any agent being a straightforward exercise in mathematical optimization. There has been renewed interest in treating economic systems as evolutionary systems in the field of Complexity economics. Evolutionary economics does not take the characteristics of either the objects of choice or of the decision-maker as fixed, rather its focus is on the non-equilibrium processes that transform the economy from within and their implications. The processes in turn emerge from actions of agents with bounded rationality who may learn from experience and interactions. The subject draws more recently on evolutionary theory and on the evolutionary methodology of Charles Darwin. It is naturalistic in purging earlier notions of change as teleological or necessarily improving the human condition. A different approach is to apply psychology principles to economics which is argued to explain problems such as inconsistencies and biases in rational choice theory. Basic economic concepts such as utility may be viewed as due to preferences that maximized evolutionary fitness in the ancestral environment. Karl Marx based his theory of development on the premise of developing economic systems, specifically. Inferior systems were beset by internal contradictions and inefficiencies that make them impossible to survive over the long term, in Marxs scheme, feudalism was replaced by capitalism, which would eventually be superseded by socialism. The state of the world converged with the state of the evidence to make almost inevitable the development of a modern framework for the analysis of substantive economic issues. Thorstein Veblen coined the term evolutionary economics in English, the Veblenian dichotomy was a specialized variant of the instrumental theory of value due to John Dewey, with whom Veblen was to make contact briefly at the University of Chicago. TOLC and TOBE together constitute an alternative construction on the neoclassical marginalist theories of consumption and production, both are founded on his dichotomy, which is at its core a valuational principle. The ceremonial patterns of activity are not bound to any past, instrumental judgments create benefits according to a new criterion, and therefore are inherently subversive. This line of analysis was more fully and explicitly developed by Clarence E. Ayres of the University of Texas at Austin from the 1920s. A seminal article by Armen Alchian argued for adaptive success of firms faced with uncertainty, Kenneth Boulding was one of the advocates of the evolutionary methods in social science, as is evident from Kenneth Bouldings Evolutionary Perspective. Kenneth Arrow, Ronald Coase and Douglass North are some of the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel winners who are known for their sympathy to the field
35.
Expeditionary economics
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The term was first introduced in 2010 in an essay by Carl Schramm, the former President and CEO of the Ewing Marion Kauffman Foundation. It focuses on the need for economic planning on the part of developed nations to help prevent the creation of failed states. It also emphasizes the need for the structuring on new firms to rebuild the national economies. Since then, the theory has been used by the U. S. Government and its aim is to provide economic stabilization and support the counterinsurgency tactics in such nations. Expeditionary economics and armies must focus on infusing entrepreneurship and messy capitalism which prevails is the U. S and he describes the strategy adopted by economists to quickly establish a trajectory toward economic growth with the formation of firms that can generate rapid growth in revenue and employment. He also asks the U. S Army to treat economic reconstruction as part of any successful three-legged strategy of invasion, stabilization or pacification, the theory rests to a huge extent on the dynamism of new firms, which constantly introduce innovations into the economy. The U. S Governments recent engagements have made it appreciate that post-conflict economic reconstruction must become a core competence of the U. S. military, however, their actions do not present any such appreciation. There has been criticism of the theory, particularly on the point that it should be carried out by the invading army. Many economists questioned the chances of its application by other post-conflict. Carl Schramm U. S Army Entrepreneurial economics Experimental economics Nanto, Dick K. and National Security, Issues, pg 4 Milonakis, Dimitris, Fine, Ben. From Political Economy to Economics, Method, the social and the historical in the evolution of economic theory
36.
Economic geography
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Economic geography is the study of the location, distribution and spatial organization of economic activities across the world. It represents a traditional subfield of the discipline of geography, however, many economists have also approached the field in ways more typical of the discipline of economics. The subject matter investigated is strongly influenced by the researchers methodological approach, neoclassical location theorists, following in the tradition of Alfred Weber, tend to focus on industrial location and use quantitative methods. Economists such as Paul Krugman and Jeffrey Sachs have also analyzed many traits related to economic geography, the name geographical economics has been suggested as an alternative. Some of the first traces of the study of aspects of economic activities can be found in seven Chinese maps of the State of Qin dating to the 4th century BC. Ancient writings can be attributed to the Greek geographer Strabos Geographika compiled almost 2000 years ago, the earliest travel journals included descriptions of the native peoples, the climate, the landscape, and the productivity of various locations. These early accounts encouraged the development of trade patterns and ushered in the era of mercantilism. World War II contributed to the popularization of geographical knowledge generally, during environmental determinisms time of popularity, Ellsworth Huntington and his theory of climatic determinism, while later greatly criticized, notably influenced the field. Valuable contributions also came from location theorists such as Johann Heinrich von Thünen or Alfred Weber, other influential theories include Walter Christallers Central place theory, the theory of core and periphery. Fred K. Well-known economic geographers of this period include William Garrison, Brian Berry, Waldo Tobler, Peter Haggett, regional economic geography examines the economic conditions of particular regions or countries of the world. It deals with economic regionalization as well as economic development. Historical economic geography examines the history and development of economic structure. Critical economic geography is a taken from the point of view of contemporary critical geography. Behavioral economic geography examines the processes underlying spatial reasoning, locational decision making. Economic geography is sometimes approached as a branch of anthropogeography that focuses on systems of human economic activity. Spatiotemporal systems of analysis include economic activities of region, mixed social spaces, alternatively, analysis may focus on production, exchange, distribution and consumption of items of economic activity. It thus focuses on structures of agricultural landscapes and asks for the processes that lead to spatial patterns. While most research in this area concentrates rather on production than on consumption, the latter approach of agricultural geography is often applied within regional geography
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Financial economics
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Financial economics is the branch of economics characterized by a concentration on monetary activities, in which money of one type or another is likely to appear on both sides of a trade. Its concern is thus the interrelation of financial variables, such as prices, interest rates and shares and it has two main areas of focus, asset pricing and corporate finance, the first being the perspective of providers of capital and the second of users of capital. The subject is concerned with the allocation and deployment of economic resources and it is built on the foundations of microeconomics and decision theory. Financial econometrics is the branch of economics that uses econometric techniques to parameterise these relationships. Mathematical finance is related in that it will derive and extend the mathematical or numerical models suggested by financial economics, note though that the emphasis there is mathematical consistency, as opposed to compatibility with economic theory. Financial economics is usually taught at the level, see Master of Financial Economics. Recently, specialist undergraduate degrees are offered in the discipline, note that this article provides an overview and survey of the field, for derivations and more technical discussion, see the specific articles linked. As above, the discipline essentially explores how rational investors would apply decision theory to the problem of investment, the subject is thus built on the foundations of microeconomics and decision theory, and derives several key results for the application of decision making under uncertainty to the financial markets. Underlying all of economics are the concepts of present value. Its history is correspondingly early, Richard Witt discusses compound interest already in 1613, in his book Arithmeticall Questions, further developed by Johan de Witt and these ideas originate with Blaise Pascal and Pierre de Fermat. This decision method, however, fails to consider risk aversion, choice under uncertainty here, may then be characterized as the maximization of expected utility. The impetus for these ideas arise from various inconsistencies observed under the expected value framework, the development here originally due to Daniel Bernoulli, and later formalized by John von Neumann and Oskar Morgenstern. The concepts of arbitrage-free, rational, pricing and equilibrium are then coupled with the above to derive classical financial economics, Rational pricing is the assumption that asset prices will reflect the arbitrage-free price of the asset, as any deviation from this price will be arbitraged away. This assumption is useful in pricing fixed income securities, particularly bonds, intuitively, this may be seen by considering that where an arbitrage opportunity does exist, then prices can be expected to change, and are therefore not in equilibrium. An arbitrage equilibrium is thus a precondition for a general economic equilibrium, the formal derivation will proceed by arbitrage arguments. All pricing models are then essentially variants of this, given specific assumptions and/or conditions and this approach is consistent with the above, but with the expectation based on the market as opposed to individual preferences. In general, this premium may be derived by the CAPM as will be seen under #Uncertainty, with the above relationship established, the further specialized Arrow–Debreu model may be derived. This important result suggests that, under certain conditions, there must be a set of prices such that aggregate supplies will equal aggregate demands for every commodity in the economy
38.
Industrial organization
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In economics, industrial organization or Industrial economy is a field that builds on the theory of the firm by examining the structure of firms and markets. It analyzes determinants of firm and market organization and behavior as between competition and monopoly, including from government actions, there are different approaches to the subject. One approach is descriptive in providing an overview of industrial organization, such as measures of competition, the subject has a theoretical side and a practical side. According to one textbook, On one plane the field is abstract, on a second plane the topic is about real markets, teeming with the excitement and drama of struggles among real firms. The extensive use of theory in industrial economics has led to the export of this tool to other branches of microeconomics, such as behavioral economics. Industrial organization has also had significant practical impacts on antitrust law, the development of industrial organization as a separate field owes much to Edward Chamberlin, Edward S. Mason, J. M. Clark, and particularly Joe S. Bain among others. Assessments of the subject have differed over time, the preface to a related research volume in 1972 remarked on Whither industrial organization. That all is not well with this in this once flourishing field is readily apparent, a response came 15 years later, odays verdict is that industrial organization is alive and well and the queen of applied microeconomics. The Journal of Economic Literature classification codes are one way of representing the range of economics subjects, there, Industrial Organization, one of 20 primary categories, has 9 secondary categories, each with multiple tertiary categories. Collusion Signalling, such as warranties and advertising, other reviews by publication year and earliest available cited works those in 1970/1937, 1972/1933,1974, 1987/1937-1956, 1968-9. Summary and Resources Cabral, Luís M. B.2000, links to Description and chapter-preview links. The Economics of Industrial Organization, Prentice-Hall, oligopoly Pricing, Old Ideas and New Tools. Description and scroll to chapter-preview links, jeffrey Church & Roger Ware,2005. Industrial Organization, A Strategic Approach, ”, Free Textbook Nicolas Boccard,2010, Journal of Law, Economics, and Organization and issue-preview links. Review of Industrial Organization and issue-preview links, quotations related to Industrial organization at Wikiquote
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Information economics
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Information economics or the economics of information is a branch of microeconomic theory that studies how information and information systems affect an economy and economic decisions. Information has special characteristics, It is easy to create but hard to trust and it is easy to spread but hard to control. These special characteristics complicate many standard economic theories, the subject of information economics is treated under Journal of Economic Literature classification code JEL D8 – Information, Knowledge, and Uncertainty. The present article reflects topics included in that code, there are several subfields of information economics. Information as signal has been described as a kind of measure of uncertainty. It includes complete and scientific knowledge as special cases, the first insights in information economics related to the economics of information goods. In recent decades, there have been advances in the study of information asymmetries and their implications for contract theory. Information economics is related to game theory as two different types of games that may apply, including games with perfect information, complete information. Next to market coordination through the mechanism, transactions can also be executed within organizations. The information requirements of the transaction are the determinant for the actual coordination mechanism that we will observe. Information asymmetry means that the parties in the interaction have different information, expecting the other side to have better information can lead to a change in behavior. The less informed party may try to prevent the other from taking advantage of him and this change in behavior may cause inefficiency. Examples of this problem are adverse selection and moral hazard, a classic paper on adverse selection is George Akerlofs The Market for Lemons. There are two solutions to this problem, signalling and screening. For moral hazard, contracting between principal and agent may be describable as a second best solution where payoffs alone are observable with information asymmetry, Michael Spence originally proposed the idea of signaling. He proposed that in a situation with information asymmetry, it is possible for people to signal their type, thus believably transferring information to the other party and this idea was originally studied in the context of looking for a job. An employer is interested in hiring a new employee who is skilled in learning, of course, all prospective employees will claim to be skilled at learning, but only they know if they really are. Spence proposed that going to college can function as a signal of an ability to learn
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Institutional economics
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Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Its original focus lay in Thorstein Veblens instinct-oriented dichotomy between technology on the one side and the sphere of society on the other. Its name and core elements trace back to a 1919 American Economic Review article by Walton H. Hamilton, Institutional economics emphasizes a broader study of institutions and views markets as a result of the complex interaction of these various institutions. The earlier tradition continues today as a leading heterodox approach to economics, a significant variant is the new institutional economics from the later 20th century, which integrates later developments of neoclassical economics into the analysis. Law and economics has been a theme since the publication of the Legal Foundations of Capitalism by John R. Commons in 1924. Since then, there is heated debate on the role of law on economic growth, Behavioral economics is another hallmark of institutional economics based on what is known about psychology and cognitive science, rather than simple assumptions of economic behavior. Institutional economics focuses on learning, bounded rationality, and evolution and it was a central part of American economics in the first part of the 20th century, including such famous but diverse economists as Thorstein Veblen, Wesley Mitchell, and John R. Commons. Traditional institutionalism rejects the reduction of institutions to simply tastes, technology, tastes, along with expectations of the future, habits, and motivations, not only determine the nature of institutions but are limited and shaped by them. If people live and work in institutions on a regular basis, some of the authors associated with this school include Robert H. Wright Mills was highly influenced by the institutionalist approach in his major studies. Thorstein Veblen wrote his first and most influential book while he was at the University of Chicago, in it he analyzed the motivation in capitalism to conspicuously consume their riches as a way of demonstrating success. Conspicuous leisure was another focus of Veblens critique, the concept of conspicuous consumption was in direct contradiction to the neoclassical view that capitalism was efficient. Output and technological advance are restricted by business practices and the creation of monopolies, businesses protect their existing capital investments and employ excessive credit, leading to depressions and increasing military expenditure and war through business control of political power. These two books, focusing on criticism first of consumerism, and second of profiteering, did not advocate change, Veblen remains a leading critic, which cautions against the excesses of the American way. Thorstein Veblen wrote in 1898 an article entitled Why is Economics Not an Evolutionary Science, John R. Commons also came from mid-Western America. Underlying his ideas, consolidated in Institutional Economics was the concept that the economy is a web of relationships between people with diverging interests, there are monopolies, large corporations, labour disputes and fluctuating business cycles. They do however have an interest in resolving these disputes, Commons thought that government should be the mediator between the conflicting groups. Commons himself devoted much of his time to advisory and mediation work on government boards, Wesley Clair Mitchell was an American economist known for his empirical work on business cycles and for guiding the National Bureau of Economic Research in its first decades. Mitchell’s teachers included economists Thorstein Veblen and J. L. Laughlin, clarence Ayres was the principal thinker of what some has called the Texas school of institutional economics
41.
Labour economics
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Labour economics seeks to understand the functioning and dynamics of the markets for wage labour. Labour markets or job markets function through the interaction of workers and employers, Labour economics looks at the suppliers of labour services and the demanders of labour services, and attempts to understand the resulting pattern of wages, employment, and income. In economics, labour is a measure of the work done by human beings and it is conventionally contrasted with such other factors of production as land and capital. There are theories which have developed a concept called human capital, there are two sides to labour economics. Labour economics can generally be seen as the application of microeconomic or macroeconomic techniques to the labour market, microeconomic techniques study the role of individuals and individual firms in the labour market. Macroeconomic techniques look at the interrelations between the market, the goods market, the money market, and the foreign trade market. It looks at how these interactions influence macro variables such as employment levels, participation rates, aggregate income, the labour force is defined as the number of people of working age, who are either employed or actively looking for work. The participation rate is the number of people in the force divided by the size of the adult civilian noninstitutional population. The unemployment level is defined as the labour force minus the number of people currently employed, the unemployment rate is defined as the level of unemployment divided by the labour force. The employment rate is defined as the number of people currently employed divided by the adult population, in these statistics, self-employed people are counted as employed. Variables like employment level, unemployment level, labour force, and they can be contrasted with flow variables which measure a quantity over a duration of time. Changes in the force are due to flow variables such as natural population growth, net immigration, new entrants. Technological advancement often reduces frictional unemployment, for example, internet search engines have reduced the cost, structural unemployment – This reflects a mismatch between the skills and other attributes of the labour force and those demanded by employers. The process of globalization has contributed to changes in labour markets. Natural rate of unemployment – This is the summation of frictional and structural unemployment and it is the lowest rate of unemployment that a stable economy can expect to achieve, given that some frictional and structural unemployment is inevitable. Economists do not agree on the level of the rate, with estimates ranging from 1% to 5%. The estimated rate varies from country to country and from time to time, demand deficient unemployment – In Keynesian economics, any level of unemployment beyond the natural rate is probably due to insufficient goods demand in the overall economy. During a recession, aggregate expenditure is deficient causing the underutilisation of inputs, neoclassical economists view the labour market as similar to other markets in that the forces of supply and demand jointly determine price and quantity
42.
Law and economics
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Law and economics or economic analysis of law is the application of economic theory to the analysis of law that begin mostly with scholars from the Chicago school of economics. Economic concepts are used to explain the effects of laws, to assess which legal rules are economically efficient, as used by lawyers and legal scholars, the phrase law and economics refers to the application of microeconomic analysis to legal problems. Because of the overlap between legal systems and political systems, some of the issues in law and economics are also raised in political economy, constitutional economics, approaches to the same issues from Marxist and critical theory/Frankfurt School perspectives usually do not identify themselves as law and economics. Here, consciously non-neoclassical approaches to economics are used for the analysis of legal problems, as early as in the 18th century, Adam Smith discussed the economic effects of mercantilist legislation. However, to economics to analyze the law regulating nonmarket activities is relatively new. A European law & economics movement around 1900 did not have any lasting influence, in 1961, Ronald Coase and Guido Calabresi independently from each other published two groundbreaking articles, The Problem of Social Cost and Some Thoughts on Risk Distribution and the Law of Torts. This can be seen as the point for the modern school of law. The University was headed by Robert Maynard Hutchins, a collaborator of Luhnow’s in setting up this “Chicago School. ”The University already had Frank Knight, George Stigler, Henry Simons. Soon, it would also have not just Hayek himself, but Director’s brother-in-law and Stigler’s friend Milton Friedman, and also Robert Fogel, Robert Lucas, Eugene Fama, Richard Posner, and Gary Becker. In 1958, Director founded the Journal of Law & Economics, which he co-edited with Nobel laureate Ronald Coase, in 1962, he helped to found the Committee on a Free Society. After retiring from the University of Chicago School of Law in 1965, Director relocated to California and he died September 11,2004, at his home in Los Altos Hills, California, ten days before his 103rd birthday. In the early 1970s, Henry Manne set out to build a center for law and he began at Rochester, worked at Miami, but was soon made unwelcome, moved to Emory, and ended up at George Mason. The last soon became a center for the education of judges—many long out of law school and never exposed to numbers, Manne also attracted the support of the John M. Olin Foundation, whose support accelerated the movement. Today, Olin centers for Law and Economics exist at many universities, Economic analysis of law is usually divided into two subfields, positive and normative. Positive law and economics uses economic analysis to predict the effects of legal rules. So, for example, an economic analysis of tort law would predict the effects of a strict liability rule as opposed to the effects of a negligence rule. Positive law and economics has also at times purported to explain the development of rules, for example the common law of torts. Normative law and economics goes one further and makes policy recommendations based on the economic consequences of various policies
43.
Managerial economics
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Managerial economics is the application of the economic concepts and economic analysis to the problems of formulating rational managerial decisions. It is sometimes referred to as business economics and is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units, as such, it bridges economic theory and economics in practice. It draws heavily from quantitative techniques such as regression analysis, correlation, Managerial decision areas include, assessment of investible funds selecting business area choice of product determining optimum output sales promotion. Production analysis – microeconomic techniques are used to analyze production efficiency, optimum factor allocation, costs, economies of scale, capital budgeting – Investment theory is used to examine a firms capital purchasing decisions. At universities, the subject is taught primarily to advanced undergraduates and it is approached as an integration subject. That is, it integrates many concepts from a variety of prerequisite courses. In many countries it is possible to read for a degree in Business Economics which often covers managerial economics, financial economics, game theory, business forecasting, Managerial economics to a certain degree is prescriptive in nature as it suggests course of action to a managerial problem. Problems can be related to various departments in a firm like production, accounts, sales, theory of exchange or price theory. Demand is the willingness of customers to buy a commodity. It defines the size for a commodity, and at a disaggregated level the composition of the customer base. Analysis of demand is important for a firm as its revenue, profits, Managerial capitalism, The New Palgrave, A Dictionary of Economics, v.3, pp. 293–96. Personnel economics, The New Palgrave Dictionary of Economics, Managerial Economics Elmer G. Wiens The Public Firm with Managerial Incentives Khan Ahsan. Managerial Economics and Economic Analysis, 3rd edition, Pakistan, international Journal of Economics and Management Sciences Journal of Economics & Management Strategy
