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 20th century, which integrates 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, tastes, along with expectations of the future 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 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
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, fails to consider risk aversion, choice under uncertainty here, may 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 formalized by John von Neumann and Oskar Morgenstern.
The concepts of arbitrage-free, rational and equilibrium are 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, this may be seen by considering that where an arbitrage opportunity does exist, 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 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
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, 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, justice, the first principles, deriving from the radiochemist FA Soddy, were laid out in his 1926 book Wealth 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, 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 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 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 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
History of economic thought
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 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
Economics is a social science concerned chiefly with description and analysis of the production 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, firms, macroeconomics analyzes the entire economy and issues affecting it, including unemployment of resources, economic growth, and the public policies that address these issues. Economic analysis can be applied throughout society, as in business, health care, Economic analyses may be applied to such diverse subjects as crime, the family, politics, social institutions, war 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 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, 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
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, 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
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 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, how much of a high GDP is explained by education, after all, it is 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 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 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
Public economics is the study of government policy through the lens of economic efficiency and equity. At its most basic level, public economics provides a framework for thinking about whether or not the government should participate in economic markets and to what extent it should do so. In order to do this, microeconomic theory is utilized to assess whether the market is likely to provide efficient outcomes in the absence of governmental interference. Inherently, this involves the analysis of government taxation and expenditures. This subject encompasses a host of topics including market failures, Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare. Emphasis is on analytical and scientific methods and normative-ethical analysis, as distinguished from ideology, examples of topics covered are tax incidence, optimal taxation, and the theory of public goods. The Journal of Economic Literature classification codes are one way categorizing the range of economics subjects, Public Economics, one of 19 primary classifications, has 8 categories.
Diamond and James A. Mirrlees published a paper which showed that even when lump-sum taxation is not available. One of the achievements for which the great English economist A. C. Pigou is known, was his work on the divergences between marginal private costs and marginal social costs, in his book, The Economics of Welfare, Pigou describes how these divergences come about. It is, possible for the State, if it so chooses, the most obvious forms which these encouragements and restraints may assume are, of course, those of bounties and taxes. Alternatively, he describes negative externalities, such as the factory that destroys a great part of the amenities of neighboring sites, in 1960, the economist Ronald H. Coase proposed an alternative scheme whereby negative externalities are dealt with through the appropriate assignment of property rights. This result is known as the Coase theorem, Public goods, or collective consumption goods, exhibit two properties, non-rivalry and non-excludability. Something is non-excludable if its use cannot be limited to a group of people.
Again, since one cannot prevent people from viewing a firework display it is non-excludable, another example of public good is the service that is provided by law enforcement organizations, such as sheriffs and police. Typically and towns are served by one police department. The latter book is considered a classic in the field of operations research. In subsequent years, several important works appeared, Jack Hirshleifer, James DeHaven. Lectures in Public Economics, McGraw-Hill Auerbach, Alan J. and Martin S. Feldstein, Economics of the Welfare State, 4th ed. Oxford University Press
Political economy is a term used for studying production and trade, and their relations with law 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, 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, 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 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 associated with the journal The Review of International Political Economy, there 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
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, 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 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, Robert E. and Prabhu Pingali. Agrarian law Agrarian reform Agribusiness Agricultural value chain C. S, agency for International Development, Bureau for Economic Growth and Trade U. S
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 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 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 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, sociology
Natural resource economics
Natural resource economics deals with the supply and allocation of the Earths natural resources. Resource economists study interactions between economic and natural systems, with the goal of developing a sustainable and efficient economy, natural resource economics is a transdisciplinary field of academic research within economics that aims to address the connections and interdependence between human economies and natural ecosystems. Its focus is how to operate an economy within the constraints of earths natural resources. Resource economics brings together and connects different disciplines within the natural and social sciences connected to areas of earth science, human economics. Economic models must be adapted to accommodate the special features of natural resource inputs, the traditional curriculum of natural resource economics emphasized fisheries models, forestry models, and minerals extraction models. In recent years, other resources, notably air, the global climate and policy interest has now moved beyond simply the optimal commercial exploitation of the standard trio of resources to encompass management for other objectives.
For example, natural resources more broadly defined have recreational, as well as commercial values and they may contribute to overall social welfare levels, by their mere existence. The economics and policy area focuses on the aspects of environmental problems. Hotellings rule is a 1931 economic model of non-renewable resource management by Harold Hotelling and it shows that efficient exploitation of a nonrenewable and nonaugmentable resource would, under otherwise stable economic conditions, lead to a depletion of the resource. The rule states that this would lead to a net price or Hotelling rent for it that rose annually at an equal to the rate of interest. Nonaugmentable resources of inorganic materials are uncommon, most resources can be augmented by recycling and by the existence, vogely has stated that the development of a mineral resource occurs in five stages, The current operating margin governed by the proportion of the reserve already depleted. The intensive development margin governed by the trade-off between the necessary investment and quicker realization of revenue.
The extensive development margin in which extraction is begun of known, the technology margin which interacts with the first four stages. The Gray-Hotelling theory is a case, since it covers only Stages 1–3. Furthermore, Hartwicks rule provides insight to the sustainability of welfare in an economy that uses non-renewable resources. The perpetual resource concept is a complex one because the concept of resource is complex and changes with the advent of new technology, new needs and this was the worst case for resource availability, becoming a strategic and critical material. In the longer term, scarcity of tin led to completely substituting aluminum foil for tin foil and polymer lined steel cans. Resources change over time with technology and economics, more efficient recovery leads to a drop in the ore grade needed