The classical tradition of partial equilibrium theory had been to split the economy into separate markets, each of whose equilibrium conditions could be stated as a single equation determining a single variable. The theoretical apparatus of supply and demand curves developed by Fleeming Jenkin and Alfred Marshall provided a unified mathematical basis for this approach, which the Lausanne School generalized to general equilibrium theory. For macroeconomics the relevant partial theories were: Keynes sought to supplant all three aspects of the classical theory.
Introduction Adam Smith more popularly knows as the father of Economics wrote The Wealth of Nations, which is believed to have laid the foundation of economic thought and led to emergence of various schools of economic thought.
Smith was a lecturer at the University of Glasgow where his concern was morality and ethics. It would be fair to say that his views not only had an impact on the Europeans but also on those who mapped out the structure of the US government.
Adam Smith and his legacy provide the conceptual space within which governmental and societal organization and management are now viewed and understood. It has been argued that Smith did not aim to write just on economics, in fact, his writings focused around morality and economics.
Amongst many things, Smith advocated that free exchange and competitive markets would harness self-interest as a creative force. He argued that the wealth of a nation did not lie in gold and silver, but rather in the goods and services produced and consumed by people.
According to Smith, co-ordination, order and efficiency would result in the planning and direction of central authority. It will also provide the arguments put forward by other economists who believe that Adam Smith has left a legacy for economics discipline.
A few key concepts will be discussed in the following paragraphs to highlight Smithian view and how his views have evolved in the present day economic sense. Smith on Division of Labour Smith noted that specialisation and division of labour permitted far more output.
To explain his point further, Smith took the example of a factory producing pins.
Economics Q & A - 1) The current recession is the longest since the Great Depression in the 's. We are still far from a recovery with unemployment at about % . The theories forming the basis of Keynesian economics were first presented in The General Theory of Employment, Interest and Money, published in It was his explanation for the cause of the Great Depression for which he was, deservedly, most well known. Although Keynesian theories no longer. Keynesian economics (/ ˈ k eɪ n z i ə n / KAYN-zee-ən; sometimes called Keynesianism) are the various macroeconomic theories about how in the short run – and especially during recessions – economic output is strongly influenced by aggregate demand (total demand in the economy).In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy.
Smith Economics essay fact in policy theory that when each worker specialised in productive function, ten workers were able to produce 48, pins per day, or 4, pins per worker.
Without specialisation and division of labour, Smith doubted that an individual worker could produce even 20 pins per day. In the present day scenario it can be seen that division of labour and specialisation has had a positive impact enabling productivity to increase.
As it is already known, that there are several reasons why division of labour leads to enormous gains in output per worker. Firstly, specialisation permits individuals to take advantage of their existing abilities and skills.
Division of labour lets organisations adopt complex, large-scale production techniques unthinkable for an individual household.
The consequence of the above would be that the society would benefit from higher productivity and better organisational performance leading to making a higher level of profit. Adam Smith emphasised that personal self-interest when directed by market prices is a powerful force promoting economic progress.
Using terminology employed by Smith, economists refer to the tendency of competitive markets to direct the actions of self-interested individuals and bring them into harmony with the general welfare as the invisible hand principle.
This view was further supported by the Classics however opposed by Keynes, which seemed to explain recession and the economy during Great Depression, therefore adding credibility to his views.
James Tobin argued that the principle of invisible hand is the most important legacy of Adam Smith to macroeconomics. He believes that it is particularly important, as it has served as the ultimate inspiration for New Classical Macroeconomics and for Real Business Cycle theory.
It is argued that that while Smith emphasised stock as circulating capital, he assumed a one period-lag between inputs of labour and materials and outputs of saleable goods. This assumption enabled Smith to speak of profits on stock interchangeably as mark ups and as rates of return over time.
The Invisible hand is their true inspiration. They reject the Keynesian dichotomy and expect competitive markets to transmute self-interest into public interest in macroeconomic as well as microeconomic outcomes. Adam Smith on Competition According to Smith, with the existence of competition in the economy, even self-interested individuals would tend to promote the general welfare.
Conversely, when competition is weakened, business firms have more leeway to raise prices and pursue their own objectives and less incentive to innovate and develop better ways of doing things.
Gwartney in support of the above argument stated that competition is a disciplinary force for both buyers and sellers.
In a competitive environment, producers must provide goods at a low cost and serve the interests of consumers since they will have to woo them away from other suppliers. He further argued that this process leads to improvement in both products and production methods, while directing resources towards projects where they are able to produce more value.
The above also leads to the conclusion that monopoly was not seen as a necessarily positive force. Looking at the economies and world around us, it can be seen that countries promote competition for the reasons that resources are limited and it would eventually in the best interest of the society to maximise utilisation of resources.
European Union and forming alliances between member countries, goes to prove that countries have realised the benefits of working together to move towards economic development and growth, which can be made possible by encouraging competition.
Evidence suggests that international trade leads to mutual gains because it allows the residents of each country to specialise more fully in production of those things that they do best and import goods when foreigners are willing to supply them at lower cost than domestic producers.
In his writings Smith also highlighted the paradox that water, which is necessary for life, sells so cheaply while diamonds have a far greater price. This was explained y the theory of marginal analysis; according to which the total value of the good includes consumer surplus; thus total value could be quite large even though the price is low, which reflects marginal value is low.
This provided a vital explanation for why market prices have little to do with the total contribution that a good makes to the welfare of the users. In other words it can be said that it is possible for something to have a large total value but a very small marginal value and vice versa.
Smith regarded saving as a constraint on growth. Farmer believed that Smith was more of a philosopher than an economist. Being classed as the founder of political economy he saw politics and economics as dimensions of a larger philosophy.
For Smith, a value-free economics was only part of the story, he wanted to write on three main aspects namely, ethics, economics and government.Economics Theory.
Keynesian believes that the employment and production level is decided by the aggregate demand level. Then the aggregate demand is the total demand for goods and services in the whole economic system. The Theory of Comparative Advantage - Overview.
Historical Overview. The theory of comparative advantage is perhaps the most important concept in international trade theory. THE SUBJECT of this Essay is not the so-called Liberty of the Will, so unfortunately opposed to the misnamed doctrine of Philosophical Necessity; but Civil, or Social Liberty: the nature and limits of the power which can be legitimately exercised by society over the individual.
In fact, the basic question of how economics should understand itself now demands urgent attention. Since the American Economic Association was founded in the s, economists in this country have sought special status as scientifically grounded policy experts.
Economics (/ ɛ k ə ˈ n ɒ m ɪ k s, iː k ə-/) is the social science that studies the production, distribution, and consumption of goods and services.. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes basic elements in the economy, including individual agents and markets, their interactions, and the outcomes of interactions.
Essay on Political Science And Economics Political Science and Economics Economics is a social science or a branch of study that concerns itself with the problem of allocating scarce resources so as to attain the optimum satisfaction of society’s unlimited wants.