The Nature and Scope of Economics

Economics is defined as the social science that deals with the production, distribution, and consumption of goods and services. Evolved in the 19th century, the economic studies have become one of the most significant studies of modern days. From a small shop to a country, Economics plays a crucial role in the efficient running of both. No business can flourish without applying the principles of economics. The study of economics is extensive and varied. The nature and scope of economics depend upon the interaction of economic agents and how economies work. Let’s analyze the nature and scope of economics deeply.

1. Nature of Economics

The nature of economics deals with the question that whether economics falls into the category of science or arts. Various economists have given their arguments in favour of science while others have their reservations for arts.

Economics as a Science

To consider anything as a science, first, we should know what science is all about? Science deals with systematic studies that signify the cause and effect relationship. In science, facts and figures are collected and are analyzed systematically to arrive at any certain conclusion. For these attributes, economics can be considered as a science. However, economics is treated as a social science because of the following features:

  • It involves a systematic collection of facts and figures.
  • Like in science, it is based on the formulation of theories and laws.
  • It deals with the cause and effect relationship.

These points validate that the nature of economics is correlated with science. Just as in science, various economic theories are also based on logical reasoning.

Economics as an Art

It is said that “knowledge is science, action is art.” Economic theories are used to solve various economic problems in society. Thus, it can be inferred that besides being a social science, economics is also an art.

Economists use different economic theories to solve various economic problems in society. Its applicability is very vast. From a small organization to a multinational firm, economic laws come into play. The scope of economics can be understood under two subheads: Microeconomics and Macroeconomics. Let’s discuss these in detail:

Microeconomics

Microeconomics examines individual economic activity, industries, and their interaction. It has the following characteristics:

  • Elasticity: It determines the ratio of change in the proportion of one variable to another variable. For example- the income elasticity of demand, the price elasticity of demand, the price elasticity of supply, etc.
  • Theory of Production: It involves an efficient conversion of input into output. For example- packaging, shipping, storing, and manufacturing.
  • Cost of Production: With the help of this theory, the object price is evaluated by the price of resources.
  • Monopoly: Under this theory, the dominance of a single entity is studied in a particular field.
  • Oligopoly: It corresponds to the dominance of small entities in a market.

Macroeconomics

It is the study of an economy as a whole. It explains broad aggregates and their interactions “top down.” Macroeconomics has the following characteristics:

  • Growth: It studies the factors which explain economic growth such as the increase in output per capita of a country over a long period of time.
  • Business Cycle: This theory emerged after the Great Depression of the 1930s. It advocates the involvement of the central bank and the government to formulate monetary and fiscal policies to monitor the output over the business cycle.
  • Unemployment: It is measured by the unemployment rate. It is caused by various factors like rising in wages, a shortfall in vacancies, and more.
  • Inflation and Deflation: Inflation corresponds to an increase in the price of a commodity, while deflation corresponds to a decrease in the price of a commodity. These indicators are valuable to evaluate the status of the economy of a country.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 0-9 & other

A

ability-to-pay principle

absolute advantage theory

absolute income hypothesis

acceleration principle

adaptive expectations

adding-up problem

administered pricing

adverse selection

Agency theory

aggregate demand theory

Allais paradox

anarcho-syndicalism

Ansoff Matrix

arbitrage pricing policy

Arrow-Debreu model

asymmetrical information

average cost pricing

axiomatic theories

B

balanced budget multiplier

Behavioral theory of the firm

benefit approach principle

Bernoulli’s hypothesis

Bertrand duopoly model

bilateral monopoly

bimetallism

bionomics

Blue Ocean (Strategy)

bounded rationality

bureaucracy

business cycle

C

Cambridge capital controversies

capital asset pricing model

capital logic

capital theory

catallaxy

catastrophe theory

central place theory

CES production function

class struggle

classical macroeconomic model

classical theory of money

clubs, theory of

co-operative games theory

Coase theorem

Cobb-Douglas production function

cobweb theory

collective bargaining theory

collusion theory

colonialism

commodity theory of money

comparative costs

compensation principle

Competitive Advantage

Competitive Advantage (Theory)

composite commodity

Condorcet’s principle

consumer demand, theory of

consumer surplus

contestable markets theory

Contingency Theory

continuity thesis

contract theory

convergence theory

core, theory of the

corporatism

cost-benefit analysis

cost-push inflation

countervailing power

Cournot duopoly model

Cramer’s rule

crisis of capitalism

crowding hypothesis

crowding-out

currency principle

customs union theory

cyclical theory

D

decision theory

DeLorean theory

demand for money theory

demand theory

demand-pull inflation

demographic transition

dependency theory

differential rent theory

diminishing returns, law of

disequilibrium theory

distribution theory

distributism

Diversification strategy

dual decision hypothesis

dual economy theory

dual labor market theory

duopoly theory

E

economic liberalism

economic methodology

economic theory of politics

economic theory of the state

efficient market hypothesis

Engel’s law

entitlement theorem

envelope theorem

equal sacrifice theory

equilibrium theory

Euler’s theory

Evolutionary Theory of the Firm

exploitation

externalities

F

factor-price equalization theorem

falling rate of profit

fine tuning

firm, theory of the

fixed point theorems

forced saving

free banking theory

free rider problem

fundamental disquilibrium

G

game theory

general equilibrium theory

general strike

general theory of employment, interest and money

Gibrat’s rule of proportionate growth

Giffen paradox

golden rule of capital accumulation

gravity model

Gresham’s law

group theory

growth of the firm, theory of the

growth-pole theory

H

Harrod-Domar growth model

Heckscher-Ohlin trade theory

Hicks-Hansen model

historical materialism

Hotelling’s law

human capital theory

Hypercompetition theory

I

imperfect competition

imperialism

impossibility theorem

income determination, theory of

income distribution, theory of

information theory

input-output analysis

insider-outsider wage determination

Institutional Theory

internal and external balance

invisible hand (theory)

iron law of wages

IS-LM model

J

just price

K

Keynesian economics

Kondratieff cycles

L

labor force participation

labor market discrimination

labor theory of value

Laffer curve

laissez-faire

Law of diminishing returns

large numbers, law of

Le Chatelier principle

learning-by-doing

least cost location theory

Leontief paradox

life-cycle hypothesis

Lindahl equilibrium

linear programming

List of Economic theories and concepts

loanable funds theory of the rate of interest

long wages

lump-of-labor theory of wages

Lyapunov’s theorem

M

machinery question

Malthusian population theory

managerial theories of the firm

marginal cost pricing

marginal efficiency of capital

marginal productivity theory of distribution

marginal utility theory

mark-up pricing

Market penetration strategy

Market development strategy

market socialism

markets, law of

Marshall-Lerner principle

Marxism

material balances principle

measure theory

mercantilism

Modigliani-Miller theory of the cost of capital

monetarism

monopolistic competition

monopoly

monopoly capitalism

moral hazard

multiplier

multiplier-accelerator

N

NAIRU

Nash equilibrium

national income

nationalization

natural and warranted rates of growth

natural monopoly of economics

natural rate of unemployment

negative income tax

neo-classical growth theory

neo-classical theory

neo-Ricardian theory

new class

new classical macroeconomics

non-accelerating inflation rate of unemployment

non-competing groups

non-nested hypothesis

non-profit organization

O

occupation segregation

Okun’s law

oligopoly theory

opportunity cost

optimal tariff theory

option pricing theory

Organizational Ecology (Theory)

Organizational learning theory

Organizational Power (Theory)

Organizational structure (Theory)

organization theory

own rate of interest

P

paradox of thrift

paradox of value

paradox of voting

Pareto efficiency

Pareto optimality

partial equilibrium theory

peak-load pricing

perfect competition

permanent income hypothesis

Phillips curve

Physiocracy

Pigou effect

political business cycle

portfolio selection theory

Prebisch-Singer thesis

price discrimination

Privacy Policy

privatization

Product development strategy

product life-cycle theory

Product market development matrix / Product market matrix / Product-market strategy

production, theory of

profits, theories of

property

Property Rights (Theory)

public choice

public utility pricing

purchasing power parity

Q

quantity theory of money

queuing theory

R

Ramsey pricing

random walk hypothesis

rational expectations theory

rationing

Rawls theory of justice

Reaganomics

real bills doctrine

regulation

regulatory capture

relative income hypothesis

rent seeking

Resource dependence (theory)

Resource-based theory

returns to scale

revealed preference theory

Ricardian equivalence theorem

roundabout method of production

Rybczynski theorem

S

satisficing

Say’s law

Scitovsky paradox

screening hypothesis

search theory

second best, theory of

secular stagnation theory

segmented labor market theory

shadow pricing

signalling

Slutsky’s theorem

small is beautiful principle

social welfare function

Solow economic growth

specie-flow mechanism

St Petersburg paradox

stationary state

stock-flow analysis

structure-conduct-performance theory

substitution theory

sunspot theory

supply-side economics

surplus value

syndicalism

Systems Theory

T

tax incidence

technological gap theory

term structure of interest rates

Thatcherism

Tiebout hypothesis

time preference theory of interest

trade cycle

Transaction Cost Economics

trickle-down theory

turnpike theory

U

uncertainty

underconsumption theory

unemployment

V

variable proportions, law of

vent for surplus

Verdoorn’s law

Visible Hand (Theory)

VRIN model or VRIO framework

W

wages fund doctrine

Wagner’s law

Walras’s stability

Weber’s theory of the location of the firm

Wicksell’s theory of capital

X

x-efficiency

Y

Z

0-9 & other

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