Classical Economics

• Economics is the study of resource allocation and distribution in society.

• Economics has a long history that begins with early civilizations that traded via barter systems.

• Economics has developed over time into a sophisticated and subtle science that has a considerable influence on societal development.

• The first economic structures were centred on subsistence farming and hunting and gathering.

• Relying on the barter system, early civilizations including the Aztecs, Greeks, Romans, and Egyptians built rudimentary market economies.

• Ancient Greek philosophers like Aristotle and Plato studied the connection between economic and social justice, which led to the development of the earliest economic theories.

• According to Aristotle, a society's economic structure should be based on the idea of distributive justice, which guarantees the equitable distribution of goods and services.

• Feudalism, a system in which the aristocracy held property and leased it to peasants who worked on it in exchange for protection, rose to prominence during the mediaeval era.

• As towns and cities started to grow, a class of tradespeople started to emerge in the economy.

• People's lives at this time were significantly impacted by the growth of Catholicism.

• The church was crucial in regulating economic activity, especially in regards to usury (lending money with interest).

• The Mercantilists – argued for policies enabling a nation to export more than it imports, causing a net inflow of gold to pay for the difference

• Adam Smith: The father of modern economics; proposed that free markets could self-regulate through competition, supply and demand, and self-interest

• David Ricard: He is known for theories on wages and profit, labor, comparative advantage, and rents

• Say’s Law: The income generated from past production and sales is the source of spending that drives demand to buy current production

Modern Economics

• The Marginalist Revolution – divided classical and modern economics by proposing a theory that asserts individuals make decisions “on the margin”

• Equilibrium Theory – shows how the interactions of supply and demand cause a balancing in an economy, creating an equilibrium of prices

• Keynesian Economics – a theory that focuses on using government policies and intervention to manage aggregate demand to deal with or prevent recessions

• Post-Keynesian Economics – “found the market more rational and more responsive than the Keynesians had assumed—and the government less so”

• Industrial Revolution: It was a turning point in the history of the economy. Before the Industrial Revolution, small-scale artisanal producers generated the majority of the goods and services. It brought about the growth of factories and the use of machinery to mass produce items. The enormous development and wealth that this new method of production provided were accompanied with social inequity and exploitation.

The Role Of Economics

• The role of economics is to give people knowledge about how the economy functions so they can make wise decisions.

• A framework for understanding individual and group decisions is provided by economics.

• It helps to clarify the causes of behaviour and the influences on people's choices.

• For instance, it is anticipated that demand for a product will decline as its price increases.

• This fundamental economic rule, also referred to as the law of demand, aids in explaining why prices change over time.

• Understanding how businesses function also requires a thorough understanding of economics.

• Economic theories serve to explain how businesses accomplish this goal, which is to maximize profits.

• For instance, studying microeconomics enables us to comprehend how firms choose their prices, set their output levels, and decide who to hire and fire.

• Governments also make a lot of judgements based on economics.

• National economies are intricate systems that are influenced by a variety of factors, such as inflation, unemployment, and economic expansion.

• In order to comprehend these influences and implement policies that help stabilize economies and encourage growth, policymakers can use the frameworks and tools provided by economics.

• The ability of economics to shed light on how societies distribute their resources is one of its most crucial functions. Because resources are limited, they cannot be used indefinitely.

• As a result, civilizations are forced to make difficult decisions regarding how to distribute these resources.

• Economics offers a method for examining the trade-offs that are present in these choices.

• Economic models are used by policymakers to comprehend the advantages and disadvantages of certain policy solutions.

• They compare the costs of not allocating these resources to other areas with the possible advantages of investing in education.

• A framework for researching international trade is provided by economics.

• Trade between nations enables them to receive goods and services that they are unable to generate on their own.

• Economics is significant for its theoretical contributions in addition to its practical applications.

• Economic theories offer a means of comprehending how economies work and how they change through time.

• Theories that shed light on how people and society make decisions include the supply and demand model, the theory of comparative advantage, and the idea of declining marginal returns.

• Economics also helps us understand how people behave.

• Economics makes the supposition that people behave rationally and in their own best interests. But, they also acknowledge that societal expectations, cultural norms, and other outside pressures have an impact on people.

• As a result, economics offers a tool to research how people interact with one another and with society as a whole.

• Systematic analysis of carefully defined terms and the systematic testing of theories against empirical evidence are all part of a scientific study in many fields.

• Controversies among economists make news, but that does not mean that there are no established principles in this field, any more than controversies among scientists mean that there is no such thing as established principles of chemistry or physics.

• Economics had long been christened “the dismal science” by those unhappy with all the promising-sounding social theories and policy proposals that economists punctured as counterproductive.