In this essay we will discuss about Economic Theory. After reading this essay you will learn about: Meaning of Economic Theory 2. Nature of Economic Theory 3.
Economic Theory and Economic Policy 6.
Meaning of Economic Theory: Economics is a science which like any other science depends on an organised body of theoretical knowledge.
Theoretical knowledge is based on facts. And facts based on verified hypotheses are raised to the status of a theory. What is a Theory? A theory expresses a causal relationship between cause and effect. It consists of a set of definitions stating clearly what we mean by various terms, and a set of assumptions about the way in which the world behaves.
The next step is to follow a process of logical deduction to discover what is implied by these assumptions. These implications are the predictions of our theory which can be tested by the process of observation and statistical analysis of the data.
If the theory passes the test no consequent action is made necessary. If the theory is refuted by the fact, it is either amended in the light of newly acquired facts or is discarded in favour of a superior competing theory.
Economic theory is a theory in this sense. It is meant to be about the real world. Nature of Economic Theory: Economic theory involves generalisations which are statements of general tendencies or uniformities of relationships among various elements of economic phenomena. A generalisation is the establishment of a general truth on the basis of particular experiences.
For example, the generalisation that demand is an inverse function of price expresses a relationship between price and demand, other things remaining the same. If other things remain the same, the law of demand holds valid. If other things do not remain the same, it stands refuted.
Steps of Economic Theory: The various steps required to construct a theory of economics are detailed below: The first step in the formulation of a theory is the selection of the problem which must be stated clearly and correctly. The problem to be explored may be very wide like poverty, unemployment, inflation, etc.
The narrower the problem, the better it would be for a researcher to conduct his enquiry satisfactorily. The second step is to collect data or facts pertaining to the problem to be explored.
If the problem is simple the data can be easily collected. However, complicated problems may require many months or even years to collect the necessary data. This step is called descriptive economics.
Many economic principles are based on careful observation, such as the law of diminishing returns, the Malthusian theory of population, the Marshallian price theory, etc.
|Main Content||Economic theories Economic theories History is replete with all kinds of famous economic theories. Certain types of economic theories are championed by nations during certain periods of their growth and certain types of economic theories are abandoned as well.|
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After collection, the data are enumerated, classified and analysed. Classification is a way of knowing things. It is the grouping of data or facts according to their resemblances and differences, and to note comparisons and contrasts.
For instance, if the problem is to study the trend in population growth, the census data may be collected and classified by sex, age groups, literacy, marital status, occupational distribution etc. Thus enumeration, classification and analysis of data are crucial to scientific theory.
The next step is to formulate hypothesis about the economic phenomena to be analysed.
A hypothesis is a suggested answer to a problem by the aid of which we endeavour to explain facts by discovering their orderliness.
The hypothesis arises from the observed facts, experience or previous knowledge of the researcher. At this stage, simplifying assumptions may be introduced so that a particular hypothesis may be developed fully.
It is these special assumptions which become formulated consciously as a hypothesis. For example, the assumption that producers aim at maximising their profits is a plausible hypothesis on which the theory of business behaviour can be constructed.LAWRENCE ABBOTT.
Quality and Competition: An Essay in Economic Theory. Pp. ix, New York: Columbia University Press, $ Quality and Competition: An Essay in Economic Theory. Pp. ix, New York: Columbia University Press, $ Jules Kolodny The ANNALS of the American Academy of Political and Social Science Quality and Competition: An Essay in Economic Theory.
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From The Community. Amazon Try Prime Books. Go Search EN Hello. Sign in Quality and Competition: Essay in Economic Theory Hardcover – Author: Lawrence Abbot. Essay # 4. Uses of Economic Theory.
Economic theory provides us with tools of economic analysis, helps in explaining economic phenomena, in predicting economic events, in judging the performance of the economy, and in formulating economic policies. LAWRENCE ABBOTT. Quality and Competition: An Essay in Economic Theory. Pp. ix, New York: Columbia University Press, $ History is replete with all kinds of famous economic theories.
No one economic theory is the â perfect one.â There are pros and cons to the popular economic theories of mercantilism, economic liberalism, Hamiltonian, and Listian theories.