Major Economic Theories

Major Economic Theories

Economics is a social science which studies production and distribution of resources. One of the major dilemmas in economics is the reconciliation of unlimited human wants with limited resources. Economics can be normative or factual. Further, economics are subdivided into microeconomics and macroeconomics, and the highly debated in the scholar literature – mesoeconomics.

Microeconomics focuses on individual economic agents such as firms and economic agents, while macroeconomics analyses entire economies. Mesoeconomics is often used as an umbrella term for subjects falling outside clear microeconomic or macroeconomic definitions. For example, microeconomic theory would explain such topics as fixed, variable and mixed costs, while macroeconomic models define GDP (Gross Domestic Product) and the importance of central banks in regulating a country’s economy.

Hotel Atlantis in Bahamas. Photo : ElenaB.

At its inception, economics was very closely related to political science ad was named political economy. Only later has the term economics emerged. Further, finance is a field of economics. Many economists would suggest that economics are all about supply and demand, or the willingness and ability of producers to produce and consumers to consume, respectively. When the quantity produced equals the quantity consumed the market is in equilibrium, thus the term economic or market equilibrium.

The major economic theorists remain Adam Smith and John Maynard Keynes. Adam Smith is considered the founder of economics with his book The Wealth of Nations published in 1776. Classical and neoclassical economists disagree about the interpretation of the publication, however. Classical economists include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. Alternatively, neoclassical economics is an alternative school of thought. Additionally, Keynesian economics or Keynesianism rests on the idea that during recessions (the opposite of expansions) economic output or production is directed by aggregate demand.

Economics: A Brief Definition and Some Facts

As outlined elsewhere, economics is the social science grappling with the problematic of scarcity. How to satisfy an unlimited number of wants with a limited amount of resources? Economic theories aim at resolving this dilemma. Just as psychologists and other scientists of humanities and the social realm, economists come under laborious criticism. Nonetheless, normative economics distances itself from the outlining of objective economic facts.

Further, as shown in this animated video, the study of economics may be subdivided into three categories: macroeconomics, mesoeconomics and microeconomics. For brevity’s sake, and to avoid rehashing the cartoon’s information, the details are omitted from the present short essay.

When quantity (Qs) supplied equals quantity demanded (Qd, the market is in equilibrium (E) at the market price (Pe). Demand (supply) and quantity demanded (supplied) differ in that the former is a curve, and the latter is a point on that curve. When analyzing which forces drive the economy, one often hears economics are all about demand and supply. Image: Copyright © Megan Jorgensen (Elena)

Studies in economics reveal many noteworthy facts, such as that royalty the term used to refer to what musical artists get when their song is played on the radio – royalties – was derived from the past, when monarchs had to be paid for cultivation on their land. Although the transition from nomad hunting to sedentary agriculture proved largely beneficial to civilization’s progress, before the Industrial Revolution (when massive urbanization took place), most peasants and surfs had to subsist on the fruits of their farming and agricultural labor. Part of what they cultivated went as payment to the sovereign who owned the land they lived and planted crops on.


Aside from some exceptions, feudal society is largely gone, and most of today’s economies are so-called mixed market economies. In conclusion, ceteris paribus is a widespread assumption in economics, and stands for ‘all other things being equal” in Latin, often used to signify that all remaining factors except the one of interest are held constant.