Economic theories

From Economypedia.com

Economic theories are hypotheses about economic structures and constructs of commerce. Economic theories provide an opening for research in areas like production, distribution, and consumption of wealth. These theories analyze various aspects of the subject of economics. Economic theories are mainly based on meticulous theoretical logic and mathematical tools supported by several examples of economic problems. Economic theories contribute towards better perception of economic problems and their solutions.

With the progress of economic thoughts several theories came forward. Economic goals were a source of motivation almost three centuries ago that aided in understanding economics and taking wise decisions. There are several schools of economies that have put forward several theories.

Starting with Mercantilists theories, we see that Mercantilism believed that nation's wealth came largely from accumulation of gold and silver. Mercantilism was the thought of 16th and 17th centurys’ merchants and statesmen. They believed that any nation lacking natural resources can accumulate gold and silver by selling more goods abroad as compared to buying goods from abroad. Here special interest was paid in commercial aspects of any economy.

After Mercantilism, there was the advent of Physiocrats; these were a group of French philosophers of 18th century. They introduced the idea of circular flow of income and output in an economy. They believed that agriculture was the only supply of wealth in an economy. They advocated laissez-faire policy, which means nominal government hindrance in an economy.

With Adam Smith, the economic theories of classical school came into limelight. Adam Smith introduced three major factors of production as land, labor and capital. These three factors had major contribution towards the wealth of any nation. He introduced the concept of “invisible hand” in market mechanism. Apart from Adam Smith, economists like Thomas Robert Malthus, J. M. Keynes and John Stuart Mill also belong to classical school. Their theories were also brought about a revolution in the economic society.

Economic theories belonging to the Marginalist School of economics believed that prices were not only determined by the costs of production, but also by level of demand. Level of demand was again depended on the extent of consumer satisfaction. Modern macroeconomic theories are the outcome of thoughts of economists belonging to the Marginalist School of economics. [1] [2]