Understanding Economics: Principles, Divisions, and Schools of Thought

Posted on Mar 24, 2025 in Social sciences

Economics: Is the science that studies how society uses scarce resources available to produce and efficiently distribute goods and services that satisfy human needs.

Key Features of Economics:

  1. It is a social science as it seeks to solve economic problems in society.
  2. It addresses the science of scarcity, where real human needs are insufficient, highlighting the basic problem of scarcity in economics.
  3. It involves the science of choice, recognizing that resources are scarce while needs are unlimited. We must avoid depletion or inadequate use of these resources to prevent environmental degradation.
  4. Its purpose is to meet the needs of human beings through material goods and services.

Division of Economics:

  1. Positive Economics:
    1. Economic Theory: Aims to find general laws that explain economic behavior.
    2. Macroeconomics: Studies the economic reality of a globally considered perspective, focusing on major variables that determine and shape the country’s economic situation, a region, or the world economy.
    3. Microeconomics: Focuses on the behavior of individual economic units of consumption and production.
    4. Applied Economics: Attempts to describe the reality of the past and the present reality of a landscape.
  2. Normative Economics: Addresses economic problems by adopting rules or measures that rely on theories. It often has a political hue because actions are usually adopted by governments.

The Production Possibility Frontier gives us the maximum output of goods and services that a company or partnership can achieve with the resources and technology it possesses.

Economic Activities:

  1. Production Activities: Are conducted to obtain goods and services capable of meeting human needs.
  2. Distribution Activities: Aim to distribute goods and services among members of a society.
  3. Consumption Activities: Are those that directly satisfy human desires.

Schools of Economic Thought:

  • Mercantilism: Was a school of thought which prevailed in Europe between the sixteenth and the second half of the eighteenth century. It defended the interests of the time and indicated that the key to the enrichment of a country was international enrichment, where exports exceeded imports for state wealth and sovereign power.
  • Physiocracy: A school of thought led by François Quesnay, emphasizing the predominance of agriculture in France as the only truly productive sector of the economy. Farms supported the rest of society through trade, and the wealth of a nation came from its production.
  • Classical School: Emphasized that industry is the fundamental production activity, defended private property, and opposed state intervention in the economy.
  • Adam Smith: Attacked interventionism and became the precursor of economic liberalism, arguing that every individual seeks his own personal interest.
  • Malthus (Robert): Believed scarcity was exacerbated by population growth and disregard for human capacity.
  • David Ricardo: Enunciated the laws of income distribution among members of society, suggesting wages should be maintained at a low level to allow for high profits.
  • Marxism: Karl Marx made a strong criticism of the English classical school. His ideology laid the foundations of socialism and made three major contributions: He predicted instability, analyzed goodwill, and developed the theory of imperialism.