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 F wisdom
economic science and thought
ECONOMICS, social science
concerned with the production, distribution, exchange, and consumption
of goods and services. Economists
focus on the way in which individuals, groups, business enterprises, and
governments seek to achieve efficiently any economic objective they select.
Other fields of study also contribute to this knowledge: Psychology and
ethics try to explain how objectives are formed; history records changes
in human objectives; sociology interprets human behavior in social contexts.
Standard economics can be divided into
two major fields. The first, price theory or microeconomics, explains how
the interplay of supply and demand in competitive markets creates a multitude
of individual prices, wage rates, profit margins, and rental changes. Microeconomics
assumes that people behave rationally. Consumers try to spend their income
in ways that give them as much pleasure as possible. As economists say,
they maximize utility. For their part, entrepreneurs (see ENTREPRENEUR)
seek as much profit as they can extract from their operations.
The second field, macroeconomics, deals
with modern explanations of national income and employment. Macroeconomics
dates from the book, The General Theory of Employment, Interest, and Money
(1935), by the British economist John Maynard Keynes. His explanation of
prosperity and depression centers on the total or aggregate demand for
goods and services by consumers, business investors, and governments. Because,
according to Keynes, inadequate aggregate demand increases unemployment,
the indicated cure is either more investment by businesses or more spending
and consequently larger budget deficits by government.
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