Economic thoughts that shaped the world!!
Economics is a topic that impacts the life of every individual in the world. According to Wikipedia
Economics is a social science that studies the production, distribution, and consumption of goods and services.
Humans have been producing, distributing and consuming goods and services for hundreds of years(if not thousands).
With the evolving economy all around the globe. There are different theories on how the economy grows, sustains and flourishes.
Economic theories are frameworks that explain how economies work, why they grow, and how resources should be distributed.
Depending on their particular role, an economist may employ theories for different purposes. For instance, some theories aim to describe particular economic phenomena, such as inflation or supply and demand, and why they occur.
Here’s a breakdown of some key economic theories, explained:
Classical Economics
The wealth of a nation is not based on the accumulation of gold and silver but on the value of the goods and services it produces aka GDP. — The wealth of the nations
Classic Economics focuses on free markets where supply and demand naturally balance out without much government interference.
The economy works best when people act self-interested and markets are left alone. If a company overcharges for bread, fewer people buy it, and prices will naturally drop to a fair level.
Neoclassic Economic — 19th Century
It builds on classical ideas but focuses on how individuals make decisions, like choosing between two products. People make rational choices to maximize their happiness or profits.
Marginal utility (how much value you get from one extra slice of pizza). You buy a $1 coffee instead of a $4 one because it’s a better deal for your satisfaction.
Marxist Economics
Critiques capitalism, saying it creates inequality because businesses (the rich) exploit workers (the poor). Wealth and power should be shared more equally by getting rid of private ownership of resources.
A socialist system where workers own the factories and share profits equally.
Keynesian Economics
It argues that governments should step in during tough times (like recessions) to keep the economy stable. When people aren’t spending enough, the government can pump money into the economy (like building roads) to boost jobs and demand.
During a recession, the government lowers taxes and increases spending to get people working and spending again.
Monetarism (new classical) Economics
It believes controlling the supply of money in the economy is the best way to ensure stability. Inflation (rising prices) happens when too much money is circulating, so central banks should control it.
A central bank raises interest rates to reduce spending and bring inflation down.
Behavioural economics
Studies show people’s emotions and psychology influence their financial decisions. People aren’t always rational, and things like fear, trends, or social pressure can affect their choices.
During a market crash, people sell stocks out of fear, even if holding them would be smarter long-term.
Development Economics
It focuses on how poorer countries can grow and improve living standards. Economic growth happens through better infrastructure, education, and reducing inequality.
Building schools and roads to help a country grow its economy.
Each theory has strengths and weaknesses, and modern economies often combine ideas from several of them. Which one makes the most sense often depends on the situation!
