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A rule of conduct or procedure established by custom, agreement, or authority. The body of rules and principles governing the affairs of a community and enforced by a political authority; a legal system: international law. The condition of social order and justice created by adherence to such a system: a breakdown of law and civilized behavior. A set of rules or principles dealing with a specific area of a legal system: tax law; criminal law. A piece of enacted legislation. What is Law?

Economics

Economics (formerly known as political economy) studies the governance of the production, distribution and consumption of wealth and the various related problems of scarcity, finance, debt, taxation, labor, law, inequality, poverty, pollution, war, etc.

A further aspect is how the consequences of different courses of action affect individual or group behavior. Economists tend to think that incentives and preferences (tastes) together play an important role in shaping decision making. Aspects receiving particular attention in economics are trade, resource allocation and competition.

Economics is often said to be positive when it attempts to explain the consequences of different choices and normative when it prescribes a certain route of action. The nature of positive and normative economics is discussed further below.

Mathematical economics is based on the belief that mathematical methods encourage researchers to focus on essentials and makes exposition less prone to ambiguity. However, the basic ideas of economics can be taught with no more than simple arithmetic and graphs, without knowledge of the underlying formal mathematical theory. Indeed, the Austrian School of economics believes that anything beyond simple logic is not only unnecessary but inappropriate for economic analysis.

Most contemporary theory assumes that humans (or more generally, economic agents) act rationally and have access to perfect information. This idea ("homo economicus") is not accepted by all. But rationality and perfect information were essential ingredients of the seminal work of Von Neumann and Morgenstern on game theory in the 1940s, and dropping these assumptions may make otherwise simple economic models intractable. More recently, irrational behavior and imperfect information have increasingly been the subject of formal modelling (often referred to as behavioral economics), resulting in some Nobel Prizes in economics.

In any case, economics relies on formal, mathematical styles of argument more than other social sciences. However, formal modelling is also increasingly used in other social sciences, such as political science, as well as philosophy. Formal modelling can involve advanced mathematical methods, but often only relatively straightforward algebra or elementary calculus is needed.

Table of contents

Areas of study in economics

Economics is usually divided into two main categories:
  • Microeconomics, which deals with the behaviour and interaction of individual agents and firms.
  • Macroeconomics, which examines an economy as a whole with a view to understanding the interaction between economic aggregates such as income, employment and inflation.

Attempts to join these two branches or to refute the distinction between them have been important motivators in much of recent economic thought, especially in the late 1970s and early 1980s. Today, the consensus view is arguably that good macroeconomics has solid microeconomic foundations i.e. its premises have support in microeconomics.

Within these major divisions there are specialized areas of study that try to answer questions on a broad spectrum of human economic activity (see below). There are also methodologies used by economists whose underlying theories are important. The most significant example may be econometrics, which applies statistical techniques to the study of economic data.

There has been an increasing trend for ideas from economics to be applied in wider contexts. There is an economic aspect to any field where people are faced with alternatives - education, marriage, health, public policy, etc. Public Choice Theory studies how economic analysis can apply to those fields traditionally considered outside of economics. The areas of investigation in Economics therefore overlap with other social sciences, including political science and sociology.

Branches of economics and related subjects

Economics may be broken down as follows:

Microeconomics
General equilibrium -- Financial economics -- Public finance -- International trade -- Labor economics -- Development economics -- Environmental economics -- Evolutionary economics -- Public goods -- Economic geography -- Network effect -- Transport economics -- Supply and Demand -- Consumer Theory -- Health economics

Macroeconomics
Stabilisation policy -- Economic growth -- Purchasing power parity

Methodology
Econometrics -- Game Theory -- Mathematical economics

Related fields and topics:

Related fields
History of economic thought -- Political economy -- Political science -- Accounting -- Operations research

Selected topics
The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel -- Communism -- Capitalism -- Coordinatorism -- Market economy -- Informal economy -- Synthetic economies -- Participatory economics -- Natural capitalism -- Stock exchange -- economic indicator -- Regulation -- Deregulation -- Privatization

Development of economic thought

Modern economic thought is usually said to have begun with Adam Smith in the late 18th century. For an overview of precursors to Smith as well as an overview of schools that have developed later, see history of economic thought. Modern mainstream economics is primarily a further refinement of neoclassical economics.

Macroeconomics began with Keynes in the 1930s. For an overview of a number of competing schools, see macroeconomics.

Many economists use a combination of Neoclassical microeconomics and Keynesian macroeconomics. This combination, sometimes known as the Neoclassical synthesis, was dominant in Western teaching and public policy in the years following World War II and up to the late 1970s.

In principle, economics can be applied to any type of economic organization. However, it developed historically in market societies, and its most detailed and precise work has dealt with the institutions belonging to them. To what extent economics must be adjusted to be applied to earlier forms of social organization has been the source of discussion. Generally, mainstream economists mostly feel that the basic framework of economics is relevant and flexible enough to be applied to virtually any form of society. Marxist economists, who were more influential a few decades ago, often feel that each era of history obeys its very own set of laws, and that contemporary economics can only be applied to industrialized societies.

Economics and political economy

The term economics was coined in around 1870, and popularised by influential neoclassical economists such as Alfred Marshall. Prior to this the subject had been known as political economy. This term is still often used instead of economics, especially by radical economists such as Marxists.

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