Economic Science

• Economics is a social science that studies how people choose to use their scarce resources to satisfy their needs.

• Economists use the scientific method to form generalizations, economics theories and laws, and solutions to economic problems.

• Common fallacies in reasoning lead to erroneous generalizations, theories, or solutions.

• Economists play a key role in analyzing economic information and forming policies in a number of business, academic, and government settings.

• Economists often disagree with one another due to different modeling and forecasting techniques, and different values or beliefs.

Five Basic Economic Principles

• Because resources are scarce, people must choose between competing wants or needs; all economic choices involve costs.

• People's economic choices, decisions, or actions are influenced by market incentives such as prices or profits.

• Competitive markets promote allocative and technical efficiency.

• Government interventions in the economy address market shortcomings by providing public goods, social programs, and business regulations.

• Specialization by firms and by economic regions promotes productivity and economic interdependence.

Schools of Economic Thought: An Historical Overview

• Mercantilists favored the regulation of trade, and the use of business subsidies, to create a favorable balance of trade.

• Physiocrats favored the primacy of agriculture and laissez-faire principles to limit government interventions in the economy.

• Classical economists supported self-regulating competitive markets, including free trade, to promote prosperity.

• Marginalists argued that rational decision making requires people to consider the additional costs and the additional benefits of their decisions.

• Marxists supported a revolutionary form of socialism to end capitalism and its institutions such as private property and profit.

• Keynesians supported the aggressive use of fiscal policy tools to regulate aggregate demand and thereby promote economic growth and stability.

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