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François Quesnay (1694–1774)
PhysiocratPhysiocracy is a theory where the
wealth of nations is derived solely
from the value of agriculture. The
theory flourished during the
Enlightenment Era when thinkers
started apply scientific principles
to the natural world and society.
At the time, economies were almost
entirely agrarian and that is the
reason for the emphasis on
agricultural labor by physiocrats.
Manufactures and foreign trade
was rejected.Adam Smith (1723 –1790)
ClassicalSmith’s ideas shows a reflection
of the beginning of the Industrial
Revolution, and he states that
free-market economies are the
most productive and beneficial to
the societies. An economic system
based on individual self-interest is
led by an “invisible hand,” which
would achieve the greatest good for
all. Smith suggests that men can be
more efficient when labour is divided
into specialized tasks and he named
it Division of Labour.Jean-Baptiste Say (1767 – 1832)
ClassicalSay’s Law states that supply creates
its own demand. Having something
to sell leads to the ability to buy. So
the source of demand is production
and not money. In other words, a
person's ability to demand goods or
services from other is predicated
from the income produced by that
person's own acts of production. It
supports the view that governments
should not interfere with the free
market and should adopt a laissez-faire
approach. Say was heavily influenced
and strongly supported Smith’s free David Ricardo (1772 – 1823)
ClassicalComparative advantage is when a country
produces a good or service for a lower
opportunity cost than other countries.
Opportunity cost measures a trade-off. A nation
with a comparative advantage makes trade
worth it. The benefits of buying their good or
service outweigh the disadvantages. The country
may not be the best at producing something,
but the good or service has a low opportunity
cost for other countries to import. It implies that
trading is good for everyone including the
poorer nations.Alfred Marshall (1842-1924)
Neoclassical-Using both supply and demand as factors of
price determination, the supply-and-demand
curve is used to demonstrate the point at which
the market is in equilibrium.
-Price elasticity of demand, which examines how
price changes affect demand. The prices of
some goods can increase without reducing
demand, which means their prices are inelastic.
Inelastic goods tend to include items such as
medication or food, that consumers deem
crucial to daily life.William Stanley Jevons (1835 – 1882)
MarginalismEconomic decisions are made based on
marginal benefit rather than total benefit. For
example, consumers are not choosing between
all of the diamonds in the world versus all of the
water in the world. Clearly, water is more
essential to survival. They are choosing between
one additional diamond versus one additional
unit of water. This principle is known as
marginal utility.Karl Marx (1818 – 1883)
MarxianMarx identified the underlying problems of
capitalism. Workers have little power in the
capitalist economic system and they are also
readily replaceable. Market economies are
unstable with regular business cycle
fluctuations. Marx predicted that capitalism
would lead to a social and economic revolution.
As a result of the revolution, private ownership
would be replaced by collective ownership and
there would be a classless society with no
inequalities.Carl Menger (1840 –1921)
AustrianSubjective theory of value is the idea that an
object's value is not inherent and is instead
worth more to different people based on how
much they desire or need the object. The
subjective theory of value places value on how
scarce and useful an item is, rather than basing
the value of the object on how many resources
and man hours went into creating it.John Maynard Keynes (1883 –1946)
KeynesianAggregate demand which the sum of spending
by households, businesses, and the government
is the most important driving force in an
economy. Keynes claimed that free markets
have no self-balancing mechanisms that lead to
full employment and that government
intervention through public policies is necessary
to stabilize the economy.Paul Samuelson (1915 – 2009)
Neo KeynesianSamuelson contributed to many areas of
economic theory through powerful
mathematical techniques. One of his theories is
the Revealed preference theory. It states that
the best way to measure consumer preferences
is to observe their purchasing behavior.
Revealed preference theory works on the
assumption that consumers have considered a
set of alternatives before making a purchasing
decision.
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