Business Economics

Economics (from the Greek οίκος [oikos], 'family, household, estate', and νομος [nomos], 'custom, law', hence "household management" and "management of the state") is a social science that typically studies the production, distribution, trade and consumption of goods and services. Since the early part of the 20th century, economics has focused largely on measurable variables, and employed both theoretical models and empirical analysisThe use of numerical models, however, can be traced as far back as the physiocratic school.. Economic logic is increasingly applied to any problem that involves choice under scarcity or determining economic value (such as politics, religion, pyschology, history and dating). A professional working in economics or having an academic degree in the subject is an economist.

The subject is broadly divided into two main branches: microeconomics, which deals with individual agents, such as households and businesses, and macroeconomics, which considers the economy as a whole. An alternate division of the subject distinguishes positive economics, which tries objectively to predict and explain economic phenomena, from normative economics, which recommends one choice over another—such recommendations often involve subjective value judgments.

The mainstream economic paradigm is a combination of neoclassical economics and Keynesian macroeconomics. Crucial assumptions of this paradigm include the idea that resources are scarce while wants are unlimited, which is sometimes characterized as the economic problem, and an understanding that the value of most goods can be represented in terms of their open-market price. Various schools of heterodox economics, for instance socialist economics or green economics, seek to explain economic phenomena using different basic assumptions.

Definitions of economics

Broadly speaking, economics is a social science, and its area of study is human activity involved in meeting needs and wants. However, beyond this there are a range of definitions, past and present, which have been applied - first to the term political economy and then to the modern term economics. John Maynard Keynes once remarked that "Economics is the science of thinking."{See Keynes, Moggridge1976 p.28.} Broadly, the history of the study moved from the study of "wealth" to "welfare" to the idea of studying trade-offs.

Wealth definition

The earliest definitions of political economy were simple, elegant statements defining it as the study of wealth. Adam Smith, author of the seminal work The Wealth of Nations and widely regarded as the "father of economics," defines economics simply as "The science of wealth."An Inquiry into the Nature and Causes of the Wealth of Nations (external) by Adam Smith (abridged version) (Originally published in 1776) Smith offered another definition, "The Science relating to the laws of production, distribution and exchange." Wealth was defined as the specialization of labor which allowed a nation to produce more with its supply of labor and resources. This definition divided Smith and Hume from previous definitions which defined wealth as gold. Hume argued that gold without increased activity simply serves to raise prices.

John Stuart Mill defined economics as "The practical science of production and distribution of wealth"; this definition was adopted by the Concise Oxford English Dictionary.Concise Oxford English Dictionary For Mill, wealth is defined as the stock of useful things.

Definitions in terms of wealth emphasize production and consumption, and do not deal with the economic activities of those not significantly involved in these two processes (for example, retired people, beggars). For economists of this period, non-productive activity is a cost on society. This interpretation gave economics a narrow focus that was rejected by many as placing wealth in the forefront and man in the background; John Ruskin referred to political economy as a "Bastard science, the science of getting riches."

Welfare definition

Later definitions evolved to include human activity, advocating a shift toward the modern view of economics as primarily a study of man and of human welfare, not of money. Alfred Marshall in his 1890 book Principles of Economics wrote, "Political Economy or Economics is a study of mankind in the ordinary business of Life; it examines the part of the individual and social action which is most closely connected with the attainment and with the use of material requisites of well-being."Alfred Marshall, Principles of Economics, 1890.

The welfare definition was still criticized as too narrowly materialistic. It ignores, for example, the non-material aspects of the services of a doctor or a dancer. A theory of wages which ignored all those sums paid for immaterial services was incomplete. Welfare could not be quantitatively measured, because the marginal significance of money differs from rich to the poor (i.e. $100 is relatively more important to the well-being of a poor person than to that of a wealthy person). Moreover, the activities of production and distribution of goods such as alcohol and tobacco may not be conducive to human welfare, but these scarce goods do satisfy human wants.

Marxist economics still focuses on a welfare definition. In addition, several critiques of mainstream economics begin from the argument that current economic theory does not adequately measure welfare, but only monetized activity.

Scarcity definition

This definition allowed a potentially broader field of study, but it, too, has its critics. It is most amenable to those who consider economics a pure science, but others object that it reduces economics merely to a valuation theory. It ignores how values are fixed, prices are determined and national income is generated. It also ignores unemployment and other problems arising due to abundance. This definition cannot apply to such Keynesian concerns as cyclical instability, full employment, and economic growth.

The focus on scarcity continues to dominate neoclassical economics, which, in turn, predominates in most academic economics departments. It has been criticized in recent years from a variety of quarters, including institutional economics and evolutionary economics).