modern direction in economic science. The term "economics" first appeared in the unfinished work of the English economist W.S. Jevans (1835–1882) "Principles of Economics." It was introduced into wide scientific circulation and characterized in detail by A. Marshall. According to A. Marshall, the concepts of “political economy” and economics are not identical; there are pure and applied economics, respectively, political economy and economics. There are other interpretations, for example, according to the English economist M. Dobb, political economy examines the relations between classes and social groups (which was the work of A. Smith, D. Ricardo, K. Marx); At the center of E.'s research is the problem of balance, which is achieved in an atomistic society during competition. According to A. Marshall, the economy is governed by the market, the law of supply and demand, and does not require government intervention. Therefore, the exclusion of the word “political” from the name of science is natural. However, J. Keynes reintroduces into the subject of political economy the question of the role of the state in the development of society. Therefore, P. Samuelson believes that the basis of the name of the science “political economy” should be preserved. In Western literature, both of these terms are used without their generally accepted distinction.

ECONOMICS

ECONOMICS

economic theory, part of economic science that studies theoretical basis economic processes. The term “economics” was introduced into wide circulation by the British economist A. Marshall and, in a certain sense, replaced the previously used concept of “political economy,” giving it a greater practical orientation. The basis of the subject “economics” is the theory of supply and demand, the establishment of market equilibrium, market competition, behavior of producers and consumers in the market. In the Russian language, it is more correct to use instead of the English word “economics” the Russian words “economics”, “economic theory” that are adequate to it.

Raizberg B.A., Lozovsky L.Sh., Starodubtseva E.B.. Modern economic dictionary. - 2nd ed., rev. M.: INFRA-M. 479 pp.. 1999 .

Economic dictionary. 2000 .

Synonyms:

See what "ECONOMICS" is in other dictionaries:

Big Encyclopedic Dictionary

- (English economics) a branch of economic science that reveals the laws of business, business methods, economic policy, etc. at the macro and micro levels. In Western economic literature of the 20th century. the term economics is replacing the term political... ... Political science. Dictionary.

Noun, number of synonyms: 1 economics (19) ASIS Dictionary of Synonyms. V.N. Trishin. 2013… Synonym dictionary

Economics- (English economics), a branch of economic science that reveals the laws of business, business methods, economic policy, etc. at the macro and micro levels. ... Illustrated Encyclopedic Dictionary

ECONOMICS- field of economic science, economic theory, which studies the theoretical foundations of economic processes. The term "E." introduced into wide circulation by the British scientist economist A. Marshall and, in a certain sense, replaced the previously used... ... Legal encyclopedia

This article is proposed for deletion. An explanation of the reasons and the corresponding discussion can be found on the Wikipedia page: To be deleted / September 8, 2012. While the discussion process is not completed, the article can ... Wikipedia

- (English economics), a branch of economic science that reveals the laws of business, business methods, economic policy, etc. at the macro and micro levels. In Western economic literature of the 20th century. the term “economics” is replacing the term “political... encyclopedic Dictionary

economics- economic theory, part of economic science that studies the theoretical foundations of economic processes. The term Economics was introduced into wide circulation by the British scientist economist A. Marshall and, in a certain sense, replaced the previously used... ... Dictionary of economic terms

Economics- a synonym for the terms political economy and economic theory, reflecting the theoretical aspects of modern economic science. Common in Anglo-American literature. The term was first introduced by the English economist Alfred Marshall (1842 1924)... A brief dictionary of basic forestry and economic terms

The field of economic science, economic theory, which studies the theoretical foundations of economic processes. The term economics was introduced into wide circulation by the British scientist economist A. Marshall and, in a certain sense, replaced the race used... ... Encyclopedic Dictionary of Economics and Law

Books

• Economics: principles, problems and policies. Textbook, McConnell Campbell R., Brew Stanley L., Flynn Sean Masaki. One of the most popular textbooks in American colleges and universities, which went through 19 editions, was the first of its kind and published in Russia in 1992. In most Russian...
• Economics. A Short Course, Stanley L. Brew, Campbell R. McConnell. The authors of `Economics`, one of the most popular textbooks in the world, which has already gone through 19 editions, have created a new, abbreviated version - `Economics. A short course, which is designed for one…

Real meaning of the word economics it's just other name neoclassical economic theory, but messianic mania, which has taken possession of the Anglo-Saxon countries, forces them to impose them on the whole world economics term How only name for all economic science. The word economics appears more and more often in the media of the English-speaking United States, which creates difficulties for Russian-speaking readers brought up on political economy, since there is conceptual gap with the terminology of economic science of capitalist countries. After all, translate the abracadabra economics you can't, that's why history of economics reminiscent of a conspiracy detective story about the substitution of a word economy word form economics.

1.3. History of economics can't be told without but the story economics in brief one can begin with classical political economy as the stage when Alfred Marshall introduced economics into scientific circulation.

1.4. It must be said that Marxism in classical political economy has always been a marginal side trend, but Karl Marx managed to create such a holistic set of theories that other economists, following his example, decided to create their own economic directions. Moreover, quite a lot of economists opposed the Marxist concept of class struggle. Among bourgeois economists there was a search for ideas that could be contrasted with Marxist political economy, the main postulate of which was the labor theory of value.

1.5. By this time, the rapid development of industry raised questions about the conditions “under which given productive services would be distributed with optimal results among competing uses.” Works by practitioners have appeared in which “ economic phenomena are examined and assessed from the point of view of an individual business entity.” This approach quickly gained popularity, and the whole direction was called marginalism. The refusal to prioritize the sphere of production distinguished marginalists from economic analysis classics, but the principle of utility made it possible to create a theory of value that could withstand labor theory of value. The first who suggested that representatives of bourgeois classical political economy switch to the principles of marginalism was the English scientist Alfred Marshall (1842-1924), who in 1879 published a work entitled “The economics of industry", in the title of which he coined the term economics.

Economics and Economics

2.1.Word form economics was artificial, but composed so that it sounded like the first part economical pointed to economy y (economics), and the second sounded like mix(mix), which precisely reflected the content of the collection, in which Marshall decided to combine (like a “hodgepodge”) the hypotheses of marginalists with the ideas of representatives of classical political economy, who were against the theory of labor value, which is a theoretical justification for the concept of class struggle.

2.4. How did it happen that in English-speaking countries they did the unthinkable - replacing the word economics as a science, introduced by Xenophon, with a word form economics, can be seen as a detective story, reflecting the desire of capitalist countries to imagine ECONOMICS the only economic theory, consigning Marxist political economy to oblivion.

Problems of economics

3.1. Perhaps no problem would arise if the word form economics A Marshall used only as name of the Anglo-Saxon movement neoclassical theory, but in real English term economic s replaced the word economy- and, it would be okay, if in the meaning of economic science, then no - economics also denotes real economies - i.e. in the meaning - farm or. Moreover, economics term doesn't just replace the word economy in all meanings, what is more important here is that “in hindsight” - in any historical period when economics term didn't even exist.

It is difficult to understand how native English speakers understand it, but the economic texts of American schools are considered the most important, so translation into other languages ​​poses a certain difficulty, since even the context does not allow one to accurately determine value of economics.

3.4. After the collapse of the USSR, the Russian economic authorities also adopted ECONOMICS as a leadership, but for some reason is afraid to openly announce its rejection of Marxism, which allows the masses of Russians to have all sorts of illusions about political economy, not as a discarded and forgotten teaching, but as if it were a teaching supported by someone. That is why such articles are needed - so that the citizens of the new Russia really understand that there is no a full-fledged economic science does not exist today- neither in the world, nor among the Russian authorities. Even more - the whole world is faced with today's situation without any scientific theory.

Modern economics

4.1. To support your text about what constitutes modern economics, I am posting the Economics article below from a reputable site dic.academic.ru.

Economics is

Economics(English) economics meaning “economic theory”, “economics”) - a term from the field of economic sciences, relating to one of the methods of presentation economic theory and related training courses. In contrast to well-known schools and movements of economic thought (mercantilists, physiocrats, classical and Marxist political economy, etc.), economics is not an independent, integral economic doctrine. Not having, unlike those mentioned above, its own, internally consistent subject-methodological basis (and not formulating one for the development of further research within its own framework, as a doctrine), economics is an eclectic mix(cf.: econo+mix) information, laws, formulas, etc., many of which were derived within the framework of other (often competing) schools and currents of economic thought (Austrian, mathematical, historical), and therefore, upon in-depth study, may turn out to be mutually contradictory.

At the same time, it is a voluminous compendium that allows students to cover basic economic concepts(mainly related to modern markets). By providing a set of abstract formulas that do not pretend to adequately reflect reality (and cannot always be used as the basis for specific economic forecasts), economics(unlike political economy) does not focus students on the subsequent study of fundamental driving forces economic development, but on their superficially pragmatic perception as some external data. First the term economics introduced in English the British economist Alfred Marshall in her writings.

Etymology of the term economics and its place in the system of categories of economic disciplines

Original, in English, invented by Alfred Marshall word form economics adjoins not to the noun “economy” (economy, plural of which is economies), but to adjective economic(economic). Adding at the end –s, A. Marshall received a double effect: on the one hand, this is an indication of the plural form (i.e. economics it’s like an illiterately constructed word in the plural - economics, cf. higher economies), and on the other hand, a secondary strengthening of the fact of belonging to the object (i.e., based on the adjective economic, we get economic-economic). Along with this, when pronouncing the word economics out loud, there is homonymization with a compound concept economics, i.e. economic mix - which absolutely accurately reflects economics methodology as a formal, eclectic mixture of knowledge obtained by representatives of traditional schools of economic thought.

Taken together, all these factors created considerable difficulties for domestic economists in transferring meaning of the term economics into Russian. However, both “economics” and many other derived terms had already received their definitions by the end of the 19th century as economic categories, into a clear system of which the new term did not fit.

Translating the above title “The economics of industry” as “Industrial Economics” obviously ignores the ending –s(plural?). But it is precisely this option that adequately reflects the actual content of this work by Alfred Marshall (in 1879, he in no way claimed to be a new word in political economy; this book of his belongs to the functional category of applied economic research secondary, in relation to the fundamental economic sciences - sectoral economics section). However, already in the next book (The present position of economics, L., 1885) A. Marshall makes a bid for a broader field of research than the industrial sector - and in 1890 his classic work “Principles of economics” was published. Translation of the term economics in its name constituted a considerable methodological problem for domestic scientists in subsequent decades. Purely linguistic methods are not applicable to its solution: after all, each version of translation, or even interpretation, in economic sciences corresponds to generally accepted, established definitions, and assigning a new object to one of them means recognizing the identity of the corresponding group - and in the case economics is gave rise to the greatest contradictions and disputes.

“Principles of economics” by Alfred Marshall were published in the USSR in 1983−84 under the title “Principles of Political Economy”, and reissued by the same publishing house in 1993 in paperback under the title “Principles of Economic Science”. And although economics A Marshall Far from being identical to economic science as such, this compromise prompted Soviet economists to debate. Its main result was not finding the “only right” option. economics translation(such an impossible task was not set), and determining the location economics in the system of categories of the history of economic doctrines, fundamental and applied economic disciplines. It is noteworthy that in the title of N.K. Karataev’s monograph on this topic, published in 1966 under the auspices of the Institute of Economics of the USSR Academy of Sciences, Economics term deliberately given in Latin, without translation: the author demonstrated by this that in linguistic terms the problem remains open, and clarification content of the term economics remains at the discretion of scientists, in relation to the context of specific cases of its use.

In the history of economic teachings, the works of Alfred Marshall were classified as a neoclassical school. The very idea of ​​​​isolating the neoclassics as a movement arose from Thorstein Veblen (Preconceptions of Economic Science, 1900) in connection with the need to draw a divide between marginalists Austrian school and marginalists, into whose research the so-called "Marshall Cross"(see English Neoclassical economics). At the same time, other major scientists of the late 19th - early 20th centuries (Carl Menger, Leon Walras, Friedrich von Wieser, Eugen von Böhm-Bawerk, John Bates Clark) were in no hurry to support A. Marshall with unequivocal statements about the adoption of the term “economics” instead of what - or alternatives. The infiltration of the term “economics” into scientific circulation occurred, first of all, along educational and methodological lines, through training courses at universities and colleges. Their main task, in relation to teaching, was not so much to divide currents of economic thought into “right” and “wrong”, but to provide students with the broadest possible horizons in this field. And therefore neutral-collective term "economics", behind which stood an essentially eclectic (i.e., absorbing information regardless of the fundamental differences between the corresponding schools) work, turned out to be most convenient for its utilitarian application - primarily in the university system.

(ECONOMICS - how) System of economic sciences without political economy- this is the initial conclusion that suggests itself after a formal acquaintance with the curricula of universities and colleges in England and the USA... Political economy is not studied; it is considered the main economic discipline economics, or “economics”... A book recently published in Russian by American professor P. Samuelson is also called “Economics” [ Economics- Author].

In the 20th century, political economy was considered as the leading science in the system of sciences that study economics and formulate general and particular (special) economic theories on this basis, and, accordingly, was a basic economic discipline in the curricula of European universities, as well as in the entire system of higher education in Europe. THE USSR. And today in the West, political economy as a science is developing and taught along with other applied and special economic disciplines (including “economics”), scientific journals and monographs are published. During the years of perestroika discussions, political economy as a science was sometimes identified with the entire Soviet ideology, with the so-called. administratively by the command system, its planned economy. Therefore, after 1991 in Russia, many university departments of political economy were renamed departments of economic theory, and the question arose of what fundamental scientific work could replace “Capital” by K. Marx in the list of literature recommended for students.

Due to the fact that in Russia in the 1990s economic reforms followed, first of all, the ideology and practice of monetarism, and not, say, Keynesianism or another theory closer to the neoclassical principles of “Economics” - neither the classical works of Alfred Marshall and Paul Samuelson, nor other works of eminent world economists of the 20th century could to take the place of “Capital” in domestic educational programs, which remains vacant.

Current textbooks on “economic theory” taught in Russian universities are in the form of compilations of translations of various Western “Economics” textbooks, updated and/or localized at the discretion of the authors.

Criticism

Today, in the prefaces of textbooks called "Economics" each group of authors explains in its own way the relationship between the ancient term “economy” and the newly introduced "economics". Talking about the “differences” between them is pointless from a scientific point of view: in the first case, we are dealing with an object, and in the second, with one (by no means the only) method of its scientific knowledge.

In addition to the above, there are other arguments that deny the validity of using the term "economics" in Russian, incl. for linguistic reasons. Thus, V.M. Galperin pointed out the indeclinability of a term, in which even the grammatical gender is unclear, pointed out the literary illiteracy of phrases like “ principles of economics". The irony of the arguments that mathematics in Russian is not called “mathematics”, physics is not called “physics”, etc. contributed to the polemical sharpening of this problem.

Meanwhile, the development of sciences, including economics, requires the presence of clear and correct word forms as categories, i.e. definitions that have a purely unambiguous understanding. Some dictionaries recommend using the well-mastered Russian words “economics” and “economic theory” instead of borrowing “economics”. To this we can add that the practice of using this term in Russian scientific literature (articles, monographs, textbooks, candidate and doctoral dissertations) provides many fruitful precedents for conveying the original “Economics” with descriptive definitions. The practice of using Latin writing is also not prohibited - this is useful, among other things, when it comes to training courses: their naming in each country is subject to its own standards and traditions, which excludes the possibility of finding an authentic equivalent in the Russian language as such.

see also

Literature

• Blumin I.G. History of Economic Thought. - M., 1961.
• Karataev N.K. Economics - bourgeois political economy. - M.: Nauka, 1966. - 272 p.
• In cit. the article by V.M. Galperin (magazine "Higher School", 1992 No. 2) erroneously indicated the publishing house "Economy"; verified with the original book by N.K. Karataev

Notes

• 1 2 See: Blyumin I. G. History of economic doctrines (essays on theory). - M.: Higher School, 1961. - P. 174−192.
• Alfred Marshall first carried out this experiment in 1879, calling his work The economics of industry (L., 1879).
• “Principles of Economics” (1890-1891).
• Marshall A. Principles of Political Economy: in 3 vols. / lane from English R. I. Stolper, V. T. Rysin and V. I. Bomkin. - M.: Progress, 1983−1984. - Series " Economic thought West."
• Marshall A. Principles of Political Economy: in 3 vols. - M.: Progress, 1993. - Series “Economic Thought of the West.”
• Karataev N.K. Economics - bourgeois political economy. - M.: Nauka, 1966. - 272 p.
• The term neoclassical school was coined by Thorstein Veblen in 1900.
• Last (18th) ed. see: Samuelson P. E., Nordhaus V. D. Economics. - M.: Williams, 2008. - 1360 p. - ISBN 978-5-8459-1446-0.
• Karataev N.K. Decree. cit., p. 5.
• In Italy it: Economia politica is the name of the subject and one of the specializations in higher education, see for example. it: Università Commerciale Luigi Bocconi
• For example, The Review of International Political Economy. However, one of the oldest American scientific journals on economic theory, The Journal of Political Economy, published since 1892, publishes articles only within the framework of modern economic theory.
• Galperin V.M. Economics, that is, economic science // “Higher School”, 1992 No. 2. M.: 1992
• Mankiw G. Principles of Economics
• Galperin V. M. Economics, that is, economic science /
• Mikerin G. I. Assessment standards 2007: “Revision of concepts” or “Change of paradigms”
• Afontsev S. Discussive problems of the concept of national economic security// "Russia XXI". - 2001. - No. 2. - P. 38.
• Voitov A.G. History of economic doctrines.
• Raizberg B. A., Lozovsky L. Sh., Starodubtseva E. B. Modern economic dictionary. - M., 2003.
• The term Economics in Google Books.

Economic teachings, directions and schools

The ECONOMICS discussion article was published on other sites under the title WHAT IS ECONOMICS:

Chapter 1

Subject and method of economics

Human beings - miserable creatures - are burdened with needs. Among other things, we need love, social recognition, material goods and the comforts of life. Our struggle to improve material well-being, our desire to “earn a living” - this is the subject of economics, economic science. More precisely, economics is the study of human behavior in the process of production, distribution and consumption material goods and services in a world of limited resources.

However, our subject needs a deeper definition. In essence, people have both biologically and socially determined needs. We strive to acquire food, clothing, shelter, and a variety of goods and services that are associated with a decent or high standard of living. We are also endowed with certain abilities and surrounded by many material goods - natural and manufactured. It is therefore natural to use available natural and material resources - labor and management skills, tools and machines, land and mineral wealth - to produce goods and services that satisfy our material needs. It is this activity, carried out within the framework of the organizational mechanism, that we call economic system.

However, limited resources do not allow achieving an ideal solution. The indisputable fact is that the totality of all our material needs exceeds the productive capabilities of all available resources. This is why absolute material abundance does not seem feasible. This indisputable fact underlies our definition of “economics”. Economics explores the problems of effective use of limited production resources or their management in order to achieve maximum satisfaction of human material needs. While it may not seem like a given, inflation is the glaring issue today. , unemployment, military spending, budget deficits, poverty and inequality, environmental pollution, government regulation

business development, etc. - are rooted in the problem of efficient use of rare resources.

In the first chapter, however, we must avoid the temptation to become bogged down in current problems. Our immediate task is to answer the following initial questions: (1) How important is the study of economics, or what might its results be? (2) How to study economics, what are the proper methods for this? What is the methodology of economics? (3) What specific problems, limitations and pitfalls may we encounter in the study of economics?

Era of the Economist

Is economics a practical science? Is it worth your time and effort to study it? Half a century ago, John Maynard Keynes (1883-1946) - undoubtedly the most influential economist of our century - gave a convincing answer to this question:

"The ideas of economists and political thinkers - both when they are right and when they are wrong - have much more significance than is commonly thought. In fact, it is they who rule the world. Practical people who consider themselves completely immune to intellectual influences are usually slaves of some economist of the past" 1.

Ideologies competing for our minds modern world were largely influenced by the works of the great economists of the past, such as Adam Smith, David Ricardo, John Stuart Mill, Karl Marx and John Maynard Keynes 2 . For world leaders now

It is common to receive or ask economists for advice and recommendations on economic policy problems; “The political economist is now included as an indispensable member of the highest government councils” 1. Here's an example: The President of the United States constantly uses the recommendations of his Council of Economic Advisers. The wide range of economic issues that political leaders must face and on which they must take informed positions is presented in the annual "Economic report of the President of the United States". Unemployment and inflation, economic growth and productivity, taxation and government spending, poverty and income maintenance, the balance of payments and the international monetary system, labor-management relations, pollution, discrimination, immigration, competition and antitrust enforcement - these are not far a complete list of topics contained in the report.

ECONOMICS AT THE SERVICE OF CIVIL SOCIETY

The above means that if we want to be well-informed citizens, we must know the basics of economics. Most of the specific problems of daily life have important economic dimensions, and as voters we are able to influence the decisions our political leaders make to deal with these problems. What are the causes and consequences of the “twin deficits” - deficiency federal budget and the foreign trade deficit, which are constantly reported by the media? What do the grim reports about homeless people reveal? Why did the market crash on October 19, 1987? stock exchange? What is the economic significance of this dramatic drop in stock prices? Should raiding corporations be allowed to make aggressive takeovers of firms? Why is inflation undesirable? What can be done to reduce unemployment? Are existing programs, aimed at ensuring people's well-being, effective and reasonable? Should we continue to subsidize farmers? Do we need to continue to reform our tax system? Should America "reindustrialize" to restore its dominant position in global trade and finance? Has Deregulation of Air Transport, Trucking and Banking Been a Good Thing or a Bad Thing?

for society? Should the legal minimum wage be increased? Since the answers to such questions are largely determined by our elected officials, the need to understand their positions during election campaigns requires us to have a basic understanding of economics. Needless to say, a deep knowledge of this science is extremely important for political leaders themselves.

INDIVIDUAL USE OF ECONOMIC PRINCIPLES

And for somewhat more mundane and immediate reasons, economics is a vitally important discipline. It has practical implications for business. Understanding the general nature of the functioning of the economic system helps the head of an enterprise to better determine his economic policy. A manager who understands the causes and consequences of inflation can, compared to others, make more reasonable business decisions during inflationary periods. Indeed, more and more economists find themselves on the staff of large corporations. What are their functions? Collect and interpret information on which rational business decisions can be made. In turn, economics gives the individual, as a consumer and as a worker, some insight into what his best purchasing and hiring decisions are. How should a person decide what to buy and in what quantity? How to protect yourself from the decline in the purchasing power of the dollar that accompanies inflation? Which professions pay the best and which are least susceptible to unemployment? Equally, a person who understands, for example, the connection between budget and trade deficits, on the one hand, and exchange rates valuable papers(stocks and bonds) - on the other hand, is able to make more informed decisions about personal investments.

However, the reader should be warned that economics, for all its practical usefulness, is a predominantly academic subject, rather than a narrowly professional one. Unlike accounting, advertising, corporate finance and marketing, economics is not primarily the science of making money. Knowledge of economics can, of course, help in managing a business or personal finances, but this is not its main task. The problems of this science are usually studied not with individual, and with public points of view. The production, exchange and consumption of goods and services are not considered in it from the standpoint of bank account an individual, but from the perspective of society as a whole.

Methodology

What is the activity of economists 1? What goals do they pursue? What methods are used? The title of this work is "Economics: principles, problems, and policies"- contains a succinct answer to the first two of these questions. Economists formulate economic principles, which are useful in development politicians, which aims to solve economic problems problems. The methods used by economists are depicted in Figure 1-1. First, the economist identifies and collects facts that are relevant to the consideration of a particular economic problem. This task is sometimes called "descriptive or empirical economics" (Box 1). The economist also establishes economic principles, that is, he makes generalizations regarding the actual behavior of individuals and institutions. Deriving principles from facts is called economic theory or "economic analysis" (Unit 2).

As shown in Figure 1-1, in the study of economic behavior, economists can move both from theory to evidence and from evidence to theory. In more rigorous terms, this means that economists use both deductive and inductive methods. By induction we mean the crystallization, or derivation, of principles from facts. Here we begin by accumulating facts, which are then organized and analyzed so that a generalization or principle can be deduced. Induction goes from facts to theory, from the particular to the general. In Figure 1-1, the inductive method is represented by the left arrow pointing upward from block 1 to block 2.

Thus, economists often solve their problem starting at the level of theory, and then test or reject that theory by turning to the facts. This is already a deductive, or hypothetical, method. Thus, economists may rely on casual observation, speculative inference, logic, or intuition to formulate a tentative, untested principle called a hypothesis. For example, they may assume, using armchair logic, that it makes sense for consumers to buy more of a product when the price is low rather than when the price is high. The correctness of this hypothesis must then be tested by systematic and repeated examination of the relevant facts. The deductive method goes from the general to the specific, from theory to facts. This method is depicted in Figure 1-1 with an arrow pointing down from block 2 to block 1.

Deduction and induction are not opposed to each other, but complementary

Figure 1-1. The relationship between facts, principles and policies in economics

When approaching any problem or sector of the economy, economists must apply the inductive method by which they collect, organize, and summarize facts. In contrast, the deductive method involves generating hypotheses, which are then compared with facts. The generalizations obtained from any of these methods are useful not only for explaining economic behavior, but also for developing economic policy.

research methods. Hypotheses formulated by the deductive method serve as guidelines for the economist in collecting and systematizing empirical data. In turn, a known idea of ​​the facts, of the real world, is a prerequisite for the formulation of very meaningful hypotheses.

Finally, a general understanding of economic behavior, which is formed on the basis of economic principles, can then be used to develop policies, that is, measures or solutions that provide correction or elimination of the problem in question. This latter process is sometimes called "applied economics" or economic policy(block 3).

Continuing to use Figure 1-1 as a starting point, let's now explore in more detail the methodology used by economists.

DESCRIPTIVE ECONOMICS

All sciences are empirical. This means that they are all based on facts, that is, on observable and verifiable changes in known data or certain phenomena. The evidence used in the physical sciences refers to inanimate objects. Economics, as a social science, studies the behavior of individuals and institutions involved in the production, exchange and consumption of goods and services.

Gathering the facts can be an endlessly challenging task. Since the world of reality is filled with myriads of interrelated facts, the economist must be careful in their selection. One must first separate economic facts from non-economic facts, and then determine which economic facts are relevant and which are not relevant to the particular problem being considered. But even after this selection process has been completed, the facts relevant to a given problem may seem heterogeneous and unrelated.

ECONOMIC THEORY

The task of economic theory or analysis is to systematize, interpret and generalize facts. Principles and theories - the end result of economic analysis - bring order and meaning to a set of facts by linking them together, establishing proper relationships between them and deriving certain generalizations from them. “Theory without facts may be empty, but facts without theory are meaningless” 1.

Principles and theories are meaningful generalizations based on the analysis of facts, but, in turn, facts serve as a constant test of the correctness of already established principles. Facts, that is, the actual behavior of individuals and institutions in the process of production, exchange and consumption of goods and services, change over time. Therefore, it is necessary to constantly compare existing principles and theories with the changing economic environment. History of economic ideas

replete with once-true generalizations of economic behavior that have become outdated as events change.

Terminology. Here it is necessary to say a few words about terminology. Economists use concepts such as “laws,” “principles,” “theories,” and “models.” All these terms essentially mean the same thing, namely generalizations or statements of patterns in the economic behavior of individuals and institutions. The term "economic law" is somewhat misleading, since it implies a high degree of accuracy, universality of application, and even moral justice. To a somewhat lesser extent this also applies to the term “principle”. At the same time, some people wrongfully associate the term “theory” with fruitless speculations and fantastic ideas of armchair scientists, divorced from the facts and realities of our world. The term “model” largely corrects the matter. A model is a simplified picture of reality, an abstract generalization of what the actual behavior of the relevant statistics is. In this book, these four terms will be used interchangeably. The choice of a term to denote any particular generalization will here be dictated by habit or expediency. This is why the relationship between the price of a product and the quantity of it that consumers buy will be called the "law" of demand, and not the theory or principle of demand, as that is how it is commonly referred to.

A few further remarks need to be made regarding the nature and origin of economic principles.

Generalizations. Economic principles are generalizations that, as the term implies, contain somewhat imprecise quantitative definitions. Economic facts tend to be varied; Some individuals and institutions act one way and others another. Economic principles are therefore often formulated in terms of averages or statistical probabilities. For example, when economists say that in 1988 the average household (household) earned an income of about $32,000, they are making a generalization. It recognizes that some households earned much more than this, and a significant proportion earned much less. Nevertheless, this generalization, if applied and interpreted correctly, can contain a lot of meaning and be very useful.

Economic generalizations are also often expressed in the form of probabilities. Let's say a researcher might estimate that there is a 95% chance that a one-dollar cut in income taxes will increase consumer spending by 92 cents.

Assumption "all other things" equal conditions"Like other scientists, economists use the assumption in constructing their generalizations c e t e r i s p a r i b u s, or "other things being equal". In other words, they assume that all other variables except those in this moment considered remain unchanged. This method simplifies the analysis process by isolating the relationship under study. Let us illustrate this with the following example: in clarifying the relationship between the price of product X and the quantity purchased of that product, it is extremely important to accept the assumption that of all the factors that can influence the quantity purchased of X (say, the price of X, the prices of other goods, the income and tastes of consumers) , only the price of X changes. In this case, the economist is able to focus his attention on the relationship “price X - purchases of X”, ignoring the influence of other variables.

In the natural sciences, it is usually possible to conduct control experiments in which “all other conditions” are actually held constant or essentially unchanged. Thus, the scientist can subject the supposed relationship between two variables to empirical testing with great accuracy. However, economics is not a laboratory science. The economist's process of empirical testing is based on "real world" data that arises from the actual functioning of the economy. In this rather chaotic environment, the “other conditions” change. Despite the development of very complex statistical methods for preserving the equality of “other conditions,” they are still by no means perfect. As a result, economic principles applicable to practice are less strict and less accurate than the principles of laboratory sciences.

Abstractions. Economic principles or theories inevitably turn out to be abstractions. They do not reflect all the colors of reality. The very process of sorting out non-economic and irrelevant facts in the process of collecting the necessary facts already implies abstraction from reality. Unfortunately, the abstract nature of economic theory leads uninformed people to regard the theory as impractical and unrealistic. But this is nonsense! In fact, economic theories are practical precisely because they are abstractions. The world of reality is too complex and confusing to be presented as strictly ordered. Economists construct their theories with the goal of finding meaning in a chaotic set of facts that would otherwise be misleading and unhelpful, that is, with the goal of reducing the facts to a more useful, rational form. Thus, to generalize is to abstract or intentionally simplify; generalization in economics has practical significance, and therefore abstraction has the same significance. Economic theory is a model, a simplified picture

or a diagram of any sector of the economy. This model allows us to better understand reality precisely because it ignores the confusing details of reality. Finally, the theories - good theories - are based on facts and are therefore realistic. Theories that don't agree with facts are simply bad theories.

Macroeconomics and microeconomics. There are two very different levels of analysis from which an economist can derive laws concerning economic behavior. The level of macroeconomic analysis refers either to the economy as a whole or to its constituent major units, or aggregates, such as the government sector, households, and the private sector. An aggregate is a set of specific economic units that are considered as if they constituted one unit. We may find it convenient to lump together the nearly 18 million private enterprises of our economy and treat them as one giant unit. By studying aggregates, macroeconomics seeks to paint a big picture or outline the overall structure of the economy and the relationships between the large aggregates that make up the economy as a whole. No attention is paid here to the specific units that form different aggregates. It is not surprising, therefore, that macroeconomic studies of various economic problems cover the analysis of such quantities as general volume of production, general employment level, general amount of income, general amount of expenses, general price level, etc. In short, macroeconomics is not the study of trees, but of forests. It gives us a bird's eye view of the economy.

On the other hand, microeconomic analysis deals with specific economic units, with detailed by studying the behavior of these individual units. When an economist resorts to this level of analysis, he is, figuratively speaking, putting an economic unit or a very small part of the economy under the microscope and studying in detail aspects of its functioning. Here we operate in terms of an individual industry, firm or household - and focus on quantities such as production or price specific product, the number of workers employed in one company, the revenue or income of an individual company or an individual household, the expenses of a given company or family, etc. In microeconomics, we no longer study forests, but trees. Microeconomic analysis is necessary to see at close range some very specific components of our economic system.

The separation of the concepts of macroeconomics and microeconomics should not be understood as if the subject of economic science is so sharply divided into separate compartments that any of its topics can be classified as either macro or micro; Many topics and sections of economics fall into both of these areas. And indeed,

in recent years there has been a merging of macro- and microeconomics in important areas of analysis. For example, if 15-20 years ago unemployment was considered primarily a macroeconomic problem (“unemployment depends on total spending"), economists now recognize that decisions are also important in determining the unemployment rate. individual workers to look for another job and a way of functioning of a particular commodity market and the labor market.

Graphic image. Many of the models or principles presented in this book will be expressed graphically. We urge those readers who wish to restore their knowledge in the field of graphing and the study of some other quantitative relationships to familiarize themselves with the appendix to this chapter.

RATIONALE FOR ECONOMIC POLICY: POSITIVE AND NORMATIVE ECONOMICS

Moving in Figure 1-1 from the levels of facts and principles (blocks 1 and 2) to the level of justification for economic policy (block 3), we make sudden jump from positive economics to normative.

Positive economics deals with facts (already selected and transferred to the level of theory) and is free from subjective value judgments. Positive economics attempts to formulate scientific ideas about economic behavior. In contrast, normative economics represents some people's value judgments about what the economy should be like or what particular political action should be recommended based on a certain economic theory or a certain economic attitude.

Simply put, positive economics is the study of what is, whereas normative economics expresses subjective ideas about what should be. Positive economics examines the actual state of the economy; Normative economics has to determine what specific conditions or aspects of the economy are desirable or undesirable. Let's take this example. Positive statement: "Unemployment is 7% of the labor force." Normative statement: “Unemployment should be reduced.” Another positive, factual statement: “All other things being equal, if tuition increases, the number of applicants to the university will decrease.” A normative statement on the same topic is: “University tuition fees should be reduced so that more students can receive an education.” Indeed, as soon as words like “should” or “should” appear in a sentence, you can reasonably assume that you are dealing with a normative statement.

It must be emphasized that most of the apparent disagreements between economists are related to normative approaches, to policies based on judgments. In the future, we will, of course, find that different economists put forward and defend different theories or models of the economy and its constituent elements. But the greatest differences reflect the existence of different opinions or value judgments about what our society should be like. For example, there is much more agreement on how income is actually distributed than on how it should be distributed. The main thing that needs to be emphasized again and again is that value judgments or normative statements arise at the level of justification for economic policy.

A sound justification for economic policy must be based on economic principles. For example, one of the almost universally accepted principles of economics suggests that, within certain limits, there is a direct relationship between total spending and the level of employment in a country. "When total spending increases, employment increases. Conversely, when total spending decreases, employment decreases." This principle can be of invaluable service to a government in determining its economic policy. For example, when government economists notice that available statistics indicate an actual decline in overall spending, this principle will enable them to predict the occurrence of unwanted unemployment. Aware of this expected outcome, government officials can now put into action certain government policies aimed at increasing overall spending and preventing or reducing the level of expected unemployment. In short, to manage effectively, we must have the ability to foresight. Economic principles help make such foresight possible and provide the basis for sound economic policy.

Economic goals. It is important here to note and reflect on a number of economic goals or value judgments that are widely, although not universally, accepted in our society, and indeed in many other societies. These goals can be briefly formulated as follows:

1. ECONOMIC GROWTH. It is desirable to ensure the production of more and better quality goods and services, or, simply put, a higher standard of living.

2. FULL EMPLOYMENT. Suitable employment should be provided to all who are willing and able to work.

3. COST EFFICIENCY . We want to get the maximum output at the minimum cost from the limited production resources available.

STABLE PRICE LEVEL. Significant increases or decreases in the general price level, that is, inflation and deflation, must be avoided.

ECONOMIC FREEDOM. Business managers, workers and consumers must have in their economic activities high degree freedom.

FAIR DISTRIBUTION OF INCOME. No group of citizens should remain in extreme poverty while other citizens bask in luxury.

ECONOMIC SECURITY. Provision should be made for the chronically ill, disabled, incapacitated, elderly or other dependents.

TRADE BALANCE. We are committed to maintaining a healthy balance in our international trade and international financial transactions.

This list of widely accepted goals 1 provides the basis for asking a number of significant questions. First, we note that this or any other statement of basic economic goals inevitably entails the problem of their interpretation. What are "significant" changes in the price level? What is a “high degree” of economic freedom? What is a "fair" distribution of income? While most of us are willing to agree with the above goals in their general formulation, we may disagree significantly about their specific interpretation and, therefore, about the specific policy programs needed to achieve these goals. It is noteworthy that while Goals 1-4 and 8 can be measured fairly accurately, the inability to quantify Goals 5-7 undoubtedly contributes to controversy regarding their precise meaning.

Second, some of these goals are complementary in the sense that as one of them is achieved, the other or other goals can also be achieved. For example, achieving full employment (Goal 2) clearly means eliminating unemployment, that is, the main cause of low incomes (Goal 6) and economic insecurity (Goal 7). In addition, analysis of Goals 1 and 6 leads to the generally accepted conclusion that the sociopolitical tensions that severe inequalities in income distribution can cause are weakened as the absolute size of most incomes increases as a result economic growth.

Third, some goals may be conflicting or mutually exclusive. Some economists argue that the very forces that promote economic growth and full employment may be the very forces that create inflation.

Indeed, in recent years, economic research and debate has focused on the apparent tension between Goals 2 and 4. The 1st and 6th goals may also contradict each other. A number of economists note that the desire to achieve greater equality in income distribution can weaken incentives for work, investment, technological progress and entrepreneurial risk, that is, weaken the effect of precisely those factors that contribute to rapid economic growth. They make the argument that the government tends to equalize the income distribution by imposing very large taxes on high-income individuals and transferring the proceeds from such taxes to low-income individuals. The incentive for a high-income earner is weakened by the fact that such taxation reduces the opportunity to enjoy the benefits of a high income. Likewise, a low-income person has less incentive to work and to engage in other productive activities when the government is willing to subsidize them. In Chapter 37 we will give a more detailed explanation of this contradiction. Let us give an example from the international sphere. Through central planning, the Soviet Union was able to virtually eliminate unemployment, making this source of worker insecurity almost disappear. However, having gotten rid of the fear of losing their jobs, Soviet workers began to be rather careless about the work they did, and therefore labor productivity and production efficiency in the Soviet Union are very low. Here we observe a contradiction between the 7th goal (economic security) and the 1st goal (increasing worker productivity).

This brings us to the fourth conclusion. When the main goals conflict with each other, society is forced to develop a system of priorities in the implementation of the tasks that it sets for itself. Let us illustrate this with the following example: if the goals of full employment and a stable price level are to some extent mutually exclusive, that is, if full employment is accompanied by some inflation, and a stable price level entails some unemployment, society must decide whether which of these goals it considers relatively more important. Suppose that we have to choose between two options, say between a 7% increase in the annual price level accompanied by full employment, on the one hand, and a completely stable price level with an 8% unemployment rate, on the other. Which option is preferable? But what about a compromise goal in the form of, say, a 4 percent annual increase in the price level with a 6 percent unemployment rate? Here, of course, a wide field for disagreement opens up.

Economic policy development. The development of specific programs for achieving major economic goals of our society seems to be a yes-

It’s not a simple matter at all. Let us briefly consider the main stages of preparing such a policy.

The first step is to clearly define your goals. If we say we have "full employment," does that mean that every person between the ages of 16 and 65 has a job? Or does it just mean that everyone who wants to work has a job? Should we allow for the possibility of some kind of “normal” level of unemployment that exists as a result of workers voluntarily changing their jobs?

It is then necessary to identify and recognize possible consequences alternative programs to achieve the goal. This requires a clear understanding of the economic outcomes, benefits, costs and political feasibility of each alternative program. For example, economists are currently debating the relative merits and demerits of fiscal policy (which involves changes in government spending and taxation policies) and monetary policy (which entails changes in the money supply) as alternative means of achieving and maintaining full employment (see Chap. . 18).

We owe it to ourselves and to future generations to learn from past experiences with similar programs and appreciate their effectiveness; Only through such an assessment can one expect to improve the effectiveness of the policy. Did any change in taxation policy or the amount of money in circulation change the level of employment to the extent originally predicted? Has deregulation of a particular industry (e.g., airlines) produced the predicted beneficial results? If not, why not?

Traps for ordinary consciousness

So far we have looked at the research methods used by economists, avoiding the well-known difficulties and pitfalls that often encounter people trying to interpret economic problems from the standpoint of ordinary consciousness. Now let’s imagine the following obstacles that impede the process of rational economic thinking.

MISCONCEPTIONS

Unlike a novice physicist or chemist, a novice economist usually brings to the science of economics whole line erroneous and biased ideas about economic processes. For example, some may be suspicious of business profits or believe that deficit financing is always evil. Needless to say, misconceptions can

cloud our heads and prevent objective analysis. The aspiring student of economics must be prepared to discard erroneous and preconceived notions that are simply not supported by the facts.

FUZZY TERMINOLOGY

Economic terminology, widely used by newspapers and popular magazines, is sometimes overly emotional. The author—and more often than not the specific interest group he or she represents—may have special reasons for obfuscating the issue. The terms used are aimed at winning the support of the reader. Thus, we find that opponents of the government's flood control project in the Great Plains region call it "creeping socialism," while supporters of the project characterize it as "sensible democratic planning." Therefore, we must be willing to discard such terminology in order to ensure objectivity in the interpretation of important economic issues.

DEFINITIONS

No scientist is obliged to use widely accepted or publicly available definitions. An economist may find it convenient and important to express concepts in such a way that they are completely different from the definitions used by most people in everyday speech. If an economist's definitions are precise and consistent, his argument is compelling. A typical example: the term “investment” for the average citizen is associated with the purchase of bonds and shares on the securities market. Often we hear someone say that they "invested" their money in General Motors stock or government bonds! To the economist, however, "investing" means the acquisition of real assets such as machinery and equipment or the construction of a new factory building, rather than a purely financial transaction of exchanging cash or part of a bank account for an elegant piece of stamped paper.

LOGICALLY FALSE CONSTRUCTION

Another pitfall in economic thinking is the assumption that “what is true for an individual or part of a group is necessarily true for the group or whole.” This is a logically flawed construction; This wrong assumption. The correctness of a particular generalization for an individual or a part does not necessarily mean that it is also correct for a group or whole.

This can be illustrated with a non-economic example. On a sunny autumn day you are watching a football match. The local team demonstrates an excellent game. Amid the general excitement, you jump up from your seat to get a better view of the field. Summary:"If you, individual, look standing, you can see the field better." But does it follow that this is correct for the whole group, that is, for all the spectators watching the game? Of course not! If everyone watches the game standing, every spectator - and you too - will see the field the same or worse than when everyone watched him sitting!

Let us now consider one or two examples from the field of economics. For Smith, an increase in wages is desirable because, with constant prices for goods, it increases his, Smith's, purchasing power and standard of living. But if wages increase for everyone, the prices of goods will obviously rise, that is, inflation will occur. This is why Smith's standard of living may remain unchanged because rising prices cancel out the effect of his wage increase.

Another example. Individual a farmer who manages to reap an exceptionally large harvest should receive a larger than usual income as a result. This is a valid generalization. But is it applicable to all farmers? group? Obviously not, for the simple reason that for an individual farmer the prices for his products will not change (will not decrease) under the influence of this large harvest, since each farmer produces only a tiny fraction of the total production Agriculture. But for all farmers as a group, prices will change in inverse proportion to their total output 1 . Therefore, if All farmers reap a large harvest, the total volume of agricultural products increases and prices decrease. If the size of the price decline offsets the unusually large increase in yield, farm income are being reduced.

As follows from the above characterization of the difference between macroeconomics and microeconomics, the logical fallacy reminds us that generalizations that are correct at one of these levels of analysis may or may not be correct at another.

CAUSE AND INVESTIGATION:

LOGICAL ERRORPOSTHOC

Another logical fallacy in economic thinking is to assume that simply because one event precedes another, the first necessarily causes the second. This type of fallacious reasoning is known as post hoc, ergo propter hoc, or the "after this, therefore because of this" fallacy.

A clear proof of the fallacy of this line of reasoning is the following classic example. At the very beginning of spring, the tribe's healer, dressed in green robes, performs a ritual dance around his village. And then, after about a week, the trees and ground are covered with greenery. Can we confidently conclude from this that it was event A, the shamanism of the healer, that caused event B, the appearance of spring greenery? Of course not! A rooster crows before dawn, but that doesn't mean the rooster caused the sun to rise!

When analyzing various groups of empirical data, it is especially important Not confuse correlation with causation. Correlation is a technical term indicating that the relationship between two groups of data is systemic and interdependent; for example, one may find that when X increases, Y also increases. But this does not necessarily mean that X is the cause of Y. The relationship here may be purely random or due to some other factor Z not included in the analysis. Example: Economists have found a positive correlation between education and income. Typically, people with more education earn higher incomes than people with less education. Everyday common sense forces us to see education as the cause, and higher income as the effect; greater education of a worker implies that he is more productive, and such a worker receives greater monetary reward. But if you think about it, aren't cause and effect reversed here, that is, don't people with higher incomes buy more education, just as they buy more cars and more expensive food? Or perhaps this ratio is explained by the influence of other factors? Isn't the positive correlation between educational attainment and income the result of a number of traits necessary for educational success—ability, motivation, personal habits—that is, the same traits that are necessary for a worker to be highly productive and highly paid? Upon reflection, a seemingly simple cause-and-effect relationship—“higher education brings more income”—may turn out to be dubious or even not true at all.

In short, cause-and-effect relationships in economics are by no means self-evident; An economist should think carefully before concluding that event A caused event B. The mere fact that A precedes B does not justify such a conclusion.

An Economist's View

Economists use a methodology common to all natural and social sciences. Researchers of all sciences are equally aware of logical

the errors we just looked at. Therefore, economists Not They think in some special way. But they have a specific view of what they think about. Economists have developed an extremely vigilant attitude to certain aspects of everyday behavior and situations. More precisely, they look for in the actions of people and institutions rationality or purposefulness. This sense of purpose implies that people, individually or collectively, make choices by weighing costs and benefits in their decisions. It can therefore be said that economic perception is perception from the standpoint of the cost-to-cost ratio- benefits."

Because people make economic choices among a range of alternatives, each choice involves sacrifices or costs. Buying a new VCR may mean not being able to purchase a new personal computer. Taking a course in economics may exclude the possibility of taking a course in business analysis, or political science, or electronics. The government's decision to increase spending on health care for the elderly could mean worse health care for children from low-income families. Alas, there are costs everywhere! People are naturally concerned primarily with personal monetary costs, that is, the costs of studying in educational institutions, buying hamburgers, hiring babysitters for children, paying rent or going to concerts. But in Chapter 2 we will discover that everyone situations where costs arise, income or resources are less than needed.

Of course, the economic actions of workers, producers (entrepreneurs) and consumers also bring personal economic benefits. For example, workers receive wages, entrepreneurs - profit, consumers - satisfaction. When deciding how to spend their time, what products to buy, work or not work, what goods to produce and sell, etc., people compare possible benefits with costs. If the direct benefits associated with the intended course of action exceed the direct costs, it is advisable to carry out such action. If direct costs are greater than direct benefits, such actions are not rational and should not be taken. Moreover, when the magnitude of costs or benefits change, people accordingly change your behavior. Economists pay close attention to the dynamics of costs and benefits to understand the daily activities of people and institutions in the field of economics. As you read further in this book, this economic perception will become clearer to you.

SUMMARY

1. The subject of economics is the search for effective use rare resources in the production of goods and services to satisfy material needs.

Economics is studied for a number of reasons: a) it provides valuable knowledge of our social environment and behavior; b) it equips democratic civil society with the ability to intelligently make fundamental decisions; c) not being primarily a professional discipline, it can nevertheless provide the enterprise manager or consumer with valuable information.

The objectives of descriptive or empirical economics are: a) to collect those economic facts that relate to a particular problem or to a particular sector of the economy, and b) to test hypotheses with the help of facts to confirm the correctness of theories.

Generalizations derived by economists are called "principles", "theories", "laws" or "models". The formulation of these principles is the task of economic theory.

Induction is the process of crystallizing theories from facts; Deduction means formulating hypotheses and then gathering facts to confirm them.

Some economic principles relate to macroeconomics (the economy as a whole or its large aggregates), while others relate to microeconomics (specific economic units or institutions).

Economic principles are especially valuable as predictive tools; they serve as the basis for developing economic policies aimed at overcoming difficulties and controlling undesirable processes.

Positive statements embody facts (“what is”), whereas normative statements embrace value judgments (“what ought to be”).

The widely accepted economic goals of our society are economic growth, full employment, economic efficiency, stable price level, economic freedom, fair distribution of income, economic security and a rational balance of our international trade and finance. Some of these goals are mutually reinforcing; others are mutually exclusive.

There are many pitfalls in the study of economics that a novice economist may encounter. The most significant obstacles to economic knowledge include the following: a) erroneous and preconceived notions; b) terminological difficulties; c) logically flawed construction and d) difficulty in identifying clear cause-and-effect relationships.

Economic perception means the study of how individuals and institutions make rational decisions based on comparisons of costs and benefits.

TERMS AND CONCEPTS

Economics

Descriptive or empirical economics

Economic theory

Induction and deduction

Hypothesis

Rationale for economic policy

Principles or generalizations

Assumptionceterisparibus, or "other things being equal"

Macroeconomics and microeconomics

Positive and normative economics

Economic goals

Logically flawed constructionposthoc, ergopropterhoc, or "after this, therefore, because of this"

Correlation and Causality

Economic perception

QUESTIONS AND STUDY ACTIVITIES

1. Explain in detail what is the relationship between economic facts, theory and economic policy. Critically evaluate the following thesis: “The trouble with economics is that it is not a practical science. It has to pay too much attention to theory and not enough attention to facts.”

2. Analyze and explain the following quote: “Facts are rarely simple, they are usually complex; theoretical analysis is necessary to reveal the complexities and interpret the facts, because without this we cannot understand them... The statement that there is an opposition between facts and theory is false ; their true connection lies in the fact that they complement each other. In practice, we cannot judge a fact without correlating it with other facts, and such correlation is theory. Facts themselves are mute; before they can tell us anything or tell us, we need to systematize them, and systematization is theory. Theory is simply the inevitable systematization and interpretation of facts, replacing a lot of disparate particulars with generalizations that allow you to prove something and act" 1 .

What is the significance of the fact that economics is not a laboratory science? What problems arise in the process of formulating and applying economic principles?

Explain each of the following:

a) “Like all scientific laws, economic laws are established so that the consequences of human actions can be successfully foreseen” 2 ;

b) “Abstraction... is the inevitable price of universality... In fact, abstraction and universality are synonyms” 3;

c) “Quantitative values ​​serve to discipline rhetoric” 4.

5. Indicate which of the following statements applies to microeconomics and which to macroeconomics:

a) the unemployment rate in the United States was 7% in 1986;

b) the Alpo dog food factory in Bowser, Iowa, laid off 15 workers last month;

c) sudden cold weather in Central Florida reduced the citrus harvest and caused prices to rise

oranges;

d) our GNP, adjusted for inflation, increased by 2.5% in 1986;

e) last week the Manhattan Chemical Bank cut its interest rate on loans to private businesses by half a percentage point;

e) the consumer price index increased by more than 12% in 1980.

6. Determine which of the following statements is positive and which is normative:

a) the highest temperature is 89 degrees (Fahrenheit);

b) today it was too hot;

c) last year the general price level increased by 4.4%;

d) Inflation has significantly reduced living standards in the past year, and government policy should reduce it.

To what extent are the eight economic goals formulated and described in this chapter acceptable to you? What order of these goals would you set? It was argued that we set ourselves only four goals: progress, stability, justice and freedom. Does this last list of goals agree with the list of goals given in this chapter?

Analyze each of the following specific goals in light of those listed on page. 23-24 eight general goals and note where you saw contradictions between them, what is compatible with: a) reducing the level of environmental pollution; b) increasing free time; c) protecting American manufacturers from foreign competition. State which of these specific goals you accept and justify your position.

Explain the meaning of the curve in Figure 19-2 (page 340 of the original), indicating the nature of the public policy dilemma it illustrates. Which of the options offered by the curve do you prefer? And why?

Explain and give an example of a) a logical fallacy and b) the fallacy of the statement that “after this, therefore, because of this.” Why is it difficult to identify cause-and-effect relationships in the social sciences?

"Economists should never be popular; people who criticize the prosperous serve equally those who care for the needy, and it is impossible to imagine that American capitalism will prosper for long without the critics whom its leaders consider such a great resource irritation" 5. Interpret and evaluate this statement.

FINISHING TOUCH

American economy: key indicators

Before we begin to study the mechanism of functioning of the economy, it is interesting and instructive to familiarize ourselves with some of the most important facts.

1. Production volume and income. In 1988 The United States produced goods and services totaling $4,862 billion, more than any other country. The volume of production per capita amounted to 17,840 dollars. compared to $12,840. in Japan, 8870 dollars. in England, 1860 dollars. in Mexico and 120 dollars. in Ethiopia. However, according to federal government criteria, over 13% of all US residents live in poverty.

Price level. Historically, the price level has experienced both rises (inflation) and declines (deflation). However, after World War II, with the exception of one or two years, the United States experienced varying degrees of inflation. By 1988, the price level was almost 3.3 times higher than in 1967.

Employment and unemployment. After World War II, employment in the United States increased from 57 million in 1947 to 115 million in 1988. During this period, employment growth in the United States was twice that of Japan; in England, West Germany and Italy there was virtually no increase in the number of people employed. Over the past 10 years, the average annual unemployment rate in the United States has been 7.3%. The unemployment rate among blacks is more than 2 times higher than among whites.

4. Enterprises. Of the nation's 17.6 million private firms, approximately 82% are relatively small, unincorporated businesses (sole proprietorships and partnerships). The remaining 18%, which are corporations, account for about 90% of total private enterprise sales. If our largest corporation, General Motors, were a government, its output would exceed that of all but about 22 or 24 countries in the world. In 1987, 61,622 firms failed, but 685,600 new companies were founded that year.

5. Government. Governments - federal, state and local - account for about 20% of the national product. About a third of it is made up of military products. Every sixth worker in the country is in the service of the state. Current state debt equal to 2600 billion dollars, or about 10,568 dollars. per capita.

6. Foreign trade. In 1987, the United States exported $251 billion in goods and services and imported $410 billion. Exports accounted for 11% and imports 13% of the national product. Most of foreign trade carried out with others industrially developed countries; The largest trading partner is not Japan, but Canada.

The statistical table included on the inside cover of this book provides a very accessible source of information about the most important trends in the American economy.

Appendix to Chapter 1

Graphs and their meaning

structures made of multi-colored wooden balls connected by wires or rods in a certain ratio, representing protons, neutrons, etc. Economists often use graphs to illustrate their models, and students, by understanding these “pictures,” can better perceive what the economists are telling them .

Most of the principles we are considering or the models we will encounter will explain the connection between only two groups of economic facts; therefore, simple two-dimensional graphs provide a convenient means of demonstrating and manipulating these relationships.

CONSTRUCTION OF THE GRAPH

A graph is just a visual representation of the relationship between two variables. Table 1 gives us a simple hypothetical illustration showing the relationship between income and consumption. Even without studying economics, one can assume that people with high incomes consume more than people with low incomes. It should not be surprising, therefore, that Table 1 illustrates the thesis that consumption increases as income increases.

How to display the information contained in Table 1 graphically? Look at the graph shown in Figure 1. Now look again at the information in Table 1, and we will explain how to present this information convincingly by constructing the graph you just looked at.

Table 1 Relationship between income and consumption

If you flip through the pages of this book, you will find a large number of graphs. Some of them look relatively simple, others are more complex. Contrary to student jokes, the graphs were not created by economists to confuse students! Instead, the purpose of graphs is to help students clearly visualize and understand important economic relationships. Graphs serve as a means by which economists express their theories or models. Physicists and chemists sometimes illustrate their theories by building toy

What we are trying to do here is visually, or graphically, show how consumption changes as income changes. Since the determining factor here is income, we present it on the horizontal axis of the graph, as is usually customary. And since consumption is an income variable, we plot it on the vertical axis of the graph, which is also common practice. We place the independent variable on the horizontal axis and the dependent variable on the vertical axis.

Now we just need to select the scales on the vertical and horizontal axes of the graph

in such a way that the areas of change in consumption and income values ​​are clearly presented, as well as so that the considered increases in these values ​​are conveniently reflected graphically. As you can see, the area of ​​change in values ​​on the graph corresponds to the area of ​​change in values ​​in Table 1. In turn, in this example, on both scales, the increase in values ​​is 100 dollars. corresponds to a segment measuring approximately half an inch.

Next, you need to place each consumption value and each income value on which it depends on a single point that graphically reflects the above information. Our five income-consumption combinations are plotted by drawing perpendiculars from the corresponding points on the vertical and horizontal axes. For example, to find point C (200 dollars of income - 150 dollars of consumption), you should draw perpendiculars from the horizontal axis (income) from 200 dollars. and perpendicular axis from 150 dollars. These perpendiculars will intersect at point C, which forms a specific combination of “income - consumption”. You should make sure that all other income-consumption combinations shown in Table 1 are correctly placed in Figure 1. Assuming that the same general relationship between income and consumption applies to all other points between the five plotted , you can draw a line or curve connecting these points.

Using Figure 1 as a starting point, we can now formulate a number of additional important points.

Picture 1. Graphic representation of the directly proportional relationship between consumption and income

Two series of directly proportional quantities, say consumption and income, are depicted as an ascending straight line. In this case, the coordinate axis intersects at $50, and the slope of the straight line is + 1/2.

DIRECT AND INVERSE DEPENDENCIES

In this example, the rising line shows us that there is a direct relationship between income and consumption. A positive, or direct, relationship means that two variables - in this case, consumption and income - change in the same direction. An increase in consumption is associated with an increase in income; on the contrary, a decrease in consumption is associated with a decrease in income. When there is a positive, or direct, relationship between two data series, they are always shown graphically as rising lines as in Figure 1.

In contrast, the relationship between two data series can be reversed. Look at Table 2, which shows the relationship between the price of basketball tickets and the number of people attending those games at a certain state university. Here we see a negative, or inverse, relationship between ticket prices and the number of visitors; these two variables change in opposite directions. When ticket prices go down, the number of visitors increases. Conversely, when ticket prices increase, the number of visitors decreases.

In Figure 2, we plotted six points according to the data in Table 2, following the above method. At the same time, we discovered that feedback is always depicted on the graph as descending lines.

Table 2. The relationship between the price of tickets and the number of visitors

DEPENDENT AND INDEPENDENT VARIABLES

Although the task itself is extremely difficult, economists strive to determine which variable is the “cause” and which is the “effect.” In other words, we must establish which variable is independent and which

dependent By definition, a dependent variable is an “effect” or result: it is a variable that changes due to a change in some other (independent) variable. Accordingly, the independent variable is the “cause”; it is the variable that causes the dependent variable to change. As already noted, in our example with the income-consumption combination, it is generally accepted that income

is the independent variable, and consumption is the dependent variable. It is correct to say that the amount of income determines the amount of consumption, and not vice versa. Thus, ticket prices determine the attendance of basketball games at the stadium of the mentioned university, but attendance does not determine the price of tickets. The price of tickets is the independent variable and the number of tickets purchased is the dependent variable.

Remember that in high school math teachers always placed the independent variable (cause) on the horizontal axis and the dependent variable (effect) on the vertical axis. Economists are not so consistent; they place independent and dependent variables on graphs more arbitrarily. For example, they plot the “income-consumption” relationship on a graph in the same way as mathematics teachers. However, they place price and cost data on the vertical axis. Consequently, their graph of the relationship between ticket prices and stadium attendance does not correspond to the rule accepted by mathematicians.

OTHERWISE EQUAL CONDITIONS

You've probably already noticed that our simple graphs depicting the relationship between two variables ignore the many other factors that could affect the amount of consumption at a given level of income or the number of people attending basketball games at each possible ticket price. When economists depict a relationship between two variables, they invoke the ceteris paribus assumption discussed in the main text of this chapter. , or "other things being equal". Thus, Figure 1 assumes that all other factors (that is, all factors other than income) that can affect consumption remain constant, or unchanged. Similarly, in Figure 2, all factors (except ticket prices) that can affect attendance at basketball games are also held constant. In reality, as we know, “other conditions” often change. And when this happens, the specific relationships represented in our two tables and two graphs undergo changes. Accordingly, it should be assumed that the lines plotted on the graphs will shift and take a new position.

For example, what might happen to the income-consumption ratio when there is a stock market crash like the one that occurred on October 19, 1987? The expected effect of this sharp decline in stock prices would be to make people consider themselves less wealthy and therefore less likely to maintain their level of consumption at each income level. In short, one would expect a downward shift in the consumption line in Figure 1. One would have to new line consumption, based on the assumption that at each level of income the volume

I eat consumption lower, say, by 20 dollars. Note that the relationship between these variables remains straight, but the line has simply shifted to reflect less consumer spending at each income level.

Likewise, attendance at basketball games can be affected by many factors other than ticket price. For example, if the government decided to eliminate the student loan program, the university's enrollment would decline, and hence attendance at basketball games would also decline at any given ticket price. You need to redraw Figure 2 to assume that 2,000 fewer students attend basketball games at each ticket price. Question 2 at the end of this appendix introduces other variables that may cause the line showing the relationship between ticket prices and match attendance to shift.

LINE TILT

Lines can be characterized by the steepness of their slope. The slope of a straight line between two points is defined as the ratio of its vertical change (increase or decrease) to its horizontal change (abscissa difference), due to movement between points. For example, moving from a point IN to the point WITH In Figure 1, we find that the increase, or vertical change (change in consumption), is +$50, and the x-difference, or horizontal change (change in income), is +$100. From here:

Note that our slope of 1/2 is positive because consumption and income move in the same direction, meaning there is a direct, or positive, relationship between consumption and income.

What does this 1/2 slope indicate? It shows us that for every $2 increase in income. is accompanied by an increase in consumption by 1 dollar. Likewise, it shows that every decrease in income by $2. leads to a reduction in consumption by 1 dollar.

What does this slope of -5/+4 show us? , or -1 1/4? It implies that a reduction in ticket price by $5. increases the number of visitors by 4 thousand.

In the example with ticket prices and attendance at basketball games, the relationship is negative, or inverse, and as a result the slope of the line in Figure 2 is negative. Here the vertical change, or decrease in the ticket price, is 5, and the horizontal change, or the difference in abscissa, is 4. Hence:

Human. In other words, it means that a decrease in ticket price by 1 dollar. increases attendance by 800 people.

To find the position of a straight line on a graph, it is necessary, in addition to its slope, to know the point of its relocation with the ordinate axis.

In Figure 1, this point is at the level of $50. This means that if current income somehow becomes zero, consumers will still spend $50. How do they manage to spend so much on consumption if they have no current income? Answer: by obtaining a loan or selling part of your assets. Similarly, the y-intercept in Figure 2 shows us that if a ticket to a basketball game costs $25. basketball teams would play in front of empty stadium stands.

Having already understood the y-intercept and the slope, we can now clearly depict our consumption line in equation form. In general, a linear equation looks like this: y= a+ bx, Where y - dependent variable, a - vertical intersection, b is the slope of the line, and x- independent variable. In our example with the income-consumption combination, if we assume that C represents consumption (dependent variable) and Y represents income (the independent variable), the equation can become: C= a+ bY. Replacing the values ​​of the point of vertical migration and slope with our specific data, we obtain: C= 50+0,5Y. This equation allows us to determine the volume of consumption at any income level. For example, with an income of $300. (dot D In Figure 1), our equation predicts that consumption will be $200. [= 50 dollars + (0.5 x 300 dollars)]. You must prove that with an income of $250. the volume of consumption will be equal to 150 dollars.

When economists reverse the order of independent and dependent variables graphed by mathematicians and place the former on the vertical axis and the latter on the horizontal axis, it turns out that, in a sense, an ordinary linear equation is being solved with respect to the independent variable rather than the dependent variable. We noted above that this case fits our data on ticket prices and attendance at basketball games. If we assume that P represents the ticket price, and A - attendance, our equation will take the following form: P = 25 - 1,25A, where the vertical intercept is at point 25 and the negative slope is -1-1/4, or -1.25. However, knowledge of the magnitude P allows us to solve the problem of magnitude A, which is actually the dependent variable. For example, if P = 15, then our equation will contain the following values: 15 = 25 -1.25( A), or 1.25 A= 10, or A = 8. You need to test this answer against Figure 2 and also use this equation to predict how many tickets will be sold at a price of $7.5.

Figure 2: Graphical representation of the inverse relationship between ticket prices and match attendance

Two series of values, in this case ticket prices and attendance at basketball games, are plotted as a descending straight line. The slope of this line is -1 1/4.

SLOPE OF NONLINEAR CURVE

Now let's move from the simple world of linear relationships (straight lines) to the somewhat more complex world of nonlinear relationships (curves), where the slope of the curve changes as we move from one point on the curve to another. For example, consider a rising curve A.A. in Figure 3(a). Although its slope is positive throughout its entire length, we see that it decreases, or levels off, as we move up and to the right (in a northeasterly direction) along the curve. Because the slope is constantly changing, we can only measure it at a single point on the curve.

How it's done? We start by drawing a straight line that touches the curve at the point where we want to measure its slope. By definition, a line is tangent to a curve at a given point if it touches it but does not intersect it. Tech direct aa is the tangent of the curve A.A. at the point P in Figure 3(a). By drawing the indicated straight line, we can measure the slope of the curve A.A. at the point P, simply by measuring the slope of the straight line of tangency aa. In this case, in Figure 3(a) we see that when the vertical change (ordinate difference) aa is +10, horizontal change (abscissa difference) is also +10. So the slope of the tangent aa is 10/10, or +1, and hence the slope of the curve A.A. at the point P is also +1.

Now consider the downward curve BB in Figure 3(6). In this case we see that the slope BB negative and that it decreases or levels out

decreases as the curve moves down and to the right (in a southeast direction). What is the slope at the point P? Draw the line again bb, which touches the curve BB at the point P. In this case we see that when a vertical change (decrease) by her is -10, the horizontal change is only +5. Thus, the slope of the curve is + BB at the point P equals -10/+5 or -2. This includes question 6 at the end of this appendix.

between vertical change and horizontal change, adding up as you move between any two points. The slope of the ascending shower line is positive and the slope of the descending shower line is negative.

The y-intercept (abscissa) and the slope of the line establish the position of the line and are used to depict the relationship between two variables in equation form.

The slope of a curve at any point is determined by measuring the slope of the line where it touches that point.

Figure 3. Determining the slope of curves

The slope of the curve changes as you move along it from one point to another. The slope at any point can be determined by drawing a line tangent to the curve at the corresponding point and measuring the slope of that line.

APPLICATION SUMMARY

1. Graphs provide a convenient and informative way to illustrate economic relationships or principles.

There is a positive, or direct, relationship between two variables when their values ​​change in the same direction, shown on a graph as an ascending line.

There is a negative, or inverse, relationship between two variables when their values ​​change in opposite directions. These variables are plotted as a descending line.

4. The magnitude of the dependent variable (“effect”) is determined by the magnitude of the independent variable (“cause”).

5. When changes in “other factors” that may affect the relationship between two variables are taken into account, the relationship line shown on the graph should be expected to take a new position.

6. The slope of a straight line represents the ratio

TERMS AND CONCEPTS USED IN THE APPENDIX

Y- and abscissa axes

Direct and inverse dependencies

Dependent and independent variables

Straight line slope

Intersection with y-axis

Tangent

QUESTIONS FOR THE APPLICATION

AND LEARNING ASSIGNMENTS

1. Briefly explain how graphs are used as a way of depicting economic principles. What is inverse relationship? How is it depicted on a graph? What is direct dependence? How is it depicted on a graph? Draw and explain the relationships that could arise between (a) monthly precipitation (in inches) and umbrella sales, (b) tuition rates and the number of students at the university, and (c) student-athlete scholarship awards and the number of games won by a football team. university. In every case

name the factors and explain which of them, in addition to those mentioned above, can disrupt the expected relationships. Is your generalization c) compatible with the fact that historically both student numbers and tuition have increased in parallel? If not, explain any departure from this generalization.

2. Indicate how each of the following circumstances might affect the data shown in Table 2 and Figure 2 of this appendix:

a) the head of the university sports department determines the strongest teams;

b) the university football team loses three seasons in a row;

c) contracts concluded by a university football team provide for television coverage of games in its stadium.

3. The following table shows the relationship between saving and income.

Rearrange the order of this data, bring it into proper form and apply this data to the grid placed here. What will be the slope of the line? Where will the vertical intersection be? Explain the meaning of slope and intercept. Build an equation that fits the line on your graph. How much do you expect to save if your income is $12,500?

4. Create a table based on the data shown in the graph below.

Suppose that when the discount rate on loans is 16%, businesses find it unprofitable to invest in machinery and equipment. However, when the rate drops to 14%, it is considered profitable to invest $5 billion. At a rate of 12%, it is already profitable to invest 10 billion dollars. Consequently, a decrease in the rate for every two percentage points leads to an increase in investment by $5 billion. Show this relationship between interest rate and investment size verbally, in tabular form, in a graphical representation, or in the form of an equation. Place the interest rate on the vertical axis of the graph and the investment volume on the horizontal axis; in the equation use the formula i = a - bI, Where i- This interest rate, a - vertical intersection, b - the slope of the line and I - the volume of investment. Describe the advantages and disadvantages of presenting this relationship in oral, tabular, graphical, and equation form.

The graph below shows the curve XX and three tangents at points A, BAndC. Calculate the slope of the curve at these points.

7. In the graph below, is the slope of the curve AA" positive or negative? Does the slope increase or decrease as you move from AToA" Answer the same two questions related to the curve BB".

1 Keynes JM. General theory of employment, interest and money / Transl. from English M, 1978. P 458.

2 Any of the following three works will serve the reader as an excellent introduction to the history of the development of economic thought: Robert Heilbroner. The Worldly Philosophers. 6th ed. New York: Simon and Schuster, Inc., 1986; Daniel R. Fusfeld The Age of the Economist.5th ed. Chicago Scott, Foresman and Company, 1986; E. Ray Canterbury. The Making of Economics. 3d ed. Belmont, Calif.: Wadsworth Publishing Company, 1987.

1 Walter W Heller New Dimensions of Political Economy New York W W Norton & Company, Inc, 1967 P 14 It does not follow that political leaders are always satisfied with the recommendations they receive. Sober economics and “good politics” are by no means synonymous

1 Someone described an economist as a person who has a Phi Beta Capa charm hanging from one end of his watch chain. Note transl.), and there is no clock at the other end of the chain

1 Kenneth E. Boulding. Economic Analysis: Microeconomics. 4th ed. New York: Harpet & Row, Publishers, Incorporated, 1966. P. 5.

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Purpose of Economics

Abstract >> Economics

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General characteristics of economic theory

Study Guide >> Economics

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METHODOLOGICAL PREREQUISITES FOR MICRO- AND MACROECONOMIC ANALYSIS

TOPIC: SUBJECT AND METHOD "ECONOMICS"

Economics- modern direction in economic science. The term “Economics” first appeared in William Stanley Jevons (1835-1882) in his work “Principles of Economics”; it was introduced into wide scientific circulation by A. Marshall.

Economics is a science that studies human behavior in the process of production, distribution and consumption of material goods and services in a world of limited resources; problems of their effective use and management in order to maximize the satisfaction of material needs.

Economics is the study of how people and societies choose to use scarce resources, which may have multiple uses, to produce a variety of goods and distribute them now or in the future for consumption by various individuals and groups in society.

Depending on the level of analysis, Economics is traditionally divided into two large sections: macroeconomic and microeconomic theory or Macroeconomics and Microeconomics.

Macroeconomics studies the national economy as a whole: the structure of the economy as a single integrated system; production, distribution and use of gross national product, inflation, unemployment, financial system etc.

Microeconomics studies behavior of an individual economic entity, how it achieves its goals with limited resources; explores isolated economic units: industries, firms, households, individual markets; covers the analysis of such quantities as the volume of production or the price of a particular product, the number of workers employed in one company, the revenue or income of an individual enterprise, etc.

Individual economic entity - a primary, simple element of the economic system, which cannot be divided into component parts within the framework (terms) of this system, and which independently carries out certain economic functions. This link is considered to be: household, consumer, producer, investor, owner of capital, labor force, etc.

Behavior of an economic entity- this is the process of developing, making and implementing a decision on how to act, how to use the limited resources and means at his disposal with the greatest benefit for him and benefit.

Benefit- saving personal energy and time to achieve the desired level of personal well-being. Providing benefits in economic life allows you to get more free time to fulfill your needs. Microeconomics proceeds from the fact that an individual economic entity has rational behavior.

Rational behavior- behavior aimed at achieving maximum results given the available limited resources. The main motive for activity is to maximize direct material benefit, measured in a specific indicator (for the company - profit, for the buyer - consumer surplus, for the investor - return on investment, etc.). All actions that lead to a reduction in costs or an increase in benefits are considered rational. People individually or collectively make choices in their decisions, comparing costs and benefits, using economic perception.

Economic perception- perception from the standpoint of the cost-benefit ratio. When the magnitude of costs or benefits changes, the economic entity changes its behavior.

Economics is the science of effective use rare resources.

Economic efficiency characterizes the relationship between the number of units of rare resources that are used in the production process and the resulting quantity of any product. More product obtained from a given input means increased efficiency. Efficiency assumes economic rationality.

Economic rationality- a method of choosing solutions based on the desire to obtain the greatest economic results with the minimum possible expenditure of all the resources necessary for this.

Specific approaches to the analysis of economic phenomena determine the existence of different types of economic theory.

Distinguish normative And positive economics

Positive economy deals with facts that have already been selected and moved to the level of theory, i.e. is interested in the actual content of economic phenomena, identifies economic categories, answers the question “What is this?”; free from subjective value judgments, examines the actual state of the economy without assessing the importance and significance of this phenomenon.

Normative economics- characterizes economic phenomena from the point of view of what they should be; includes the assessments and wishes of individuals, their preferences.

Economics uses various methods of understanding reality: statistical research, economic and mathematical modeling of processes, abstraction and etc.

Abstraction- the process of forming an ideal, speculative, special subject of theory that does not coincide with the real one.

The essence of scientific abstractions consists in the fact that from the entire diversity of the surrounding world, only those elements, properties and relationships that seem significant from the point of view of this theory are selected, and from them an image of the real world is formed, which is subject to research. Allows you to bring facts into a more suitable, rational form, to discover the meaning of a phenomenon behind the variety of facts.

Model- a constructed image, described according to certain rules and expressed in a certain language; a simplified picture of reality, an abstract generalization of the actual state of the economy.

Assumes that:

All parties (participants) in the process being studied act
equally;

The entire economy is reduced to the model under consideration, to
dependence presented in it.

By language of presentation economic models are divided into: verbal (verbal-descriptive), mathematical and graphic.

Charts represent a visual representation of the relationship between two variables, serve as a convenient and informative way to illustrate economic dependencies or principles.

Principles serve to establish the relationship between facts and conclusions from them generalizations.

Generalizations- economic principles, which contain somewhat imprecise quantitative determinations, are formed in the form of average data or statistical probabilities. To construct them, the assumption “all other things being equal” is used. This means that all factors, except those being studied, remain unchanged. This method simplifies the analysis process by isolating the phenomenon under study. Generalizations are based on data.

Economic facts-real behavior of individuals and institutions in the process of production, exchange and consumption of goods and services. They are diverse. The task of analysis is to generalize them and bring them into a system.

Economics uses deductive and inductive research methods as not opposing, but complementing each other.

Economics characterizes reality through the economic hypotheses.

Hypothesis- a logical assumption put forward to understand the essence of certain phenomena and relationships of economic reality. A tentative, untested principle arising from casual observation, speculative inference, logic, or intuition.

There are three groups of economic hypotheses:

First group reflects economic phenomena in their connection with consumer behavior, allows you to build a model of consumer or firm behavior;

Second- refers to socio-political and economic institutions (for example, economic theories Western Europe are based on three assumptions: free market economy, stable political system, private property for means of production);

Third- is associated with the state of technology and resources in the economy, which are considered within a certain time interval and are characterized the concept of rarity.

Rarity of resources- limitation of certain types of resources, discrepancy between their quantity and that necessary to meet the needs of production, the individual, and society.

Economics has its own history of development and is conventionally divided into classical, neoclassical» Keynesian.

Classical(D. Ricardo, J. Mill, J. Sey). Developed quantitative theory money, a theory of economic growth and cyclical fluctuations, argued that market forces can ensure the achievement of full employment.

Neoclassical(A. Marshall, J. Hobson, Schumpeter) analyzed the relative prices of goods and the distribution of rare resources, studied the relationship between the general price level, the amount of money in circulation and cash in the population.

Keynesian associated with the name of J.M. Keynes, who showed that the economy does not automatically provide full employment; justified the need for government intervention in the economy; developed the theory of interest and its impact on fiscal policy; examined the marginal efficiency of capital and its relationship to the business cycle; carried out the animation analysis.

The identified areas will be considered in more detail during the macroeconomic analysis.

Economics methodology based on the recognition of the evolutionary development of economic theory, does not represent a single, logically strict system of principles for the theoretical analysis of social life for all representatives of this science. What Western economists have in common is:

1) division of the economy into the monetary sphere and
productive (real). The decisive significance is given
sphere of circulation;

2) the starting point for theoretical constructions is
subjective psychological factors (desires, preferences,
inclinations, rational behavior, motives for choosing economic
decisions, etc.).

Economics uses its own research method.

Economics method- identification of an economic pattern through a controlled experiment in which all phenomena, except the one being studied, are taken as unchanged.

By studying facts, putting forward hypotheses, making generalizations, economists reveal the principles (laws) on the basis of which the economy functions.

Economics meaning: teaches to understand the complex economic world, forms civic consciousness, develops economic type thinking.

Economics is a practically useful science that serves to substantiate economic policy.

Economic policy- general line of action pursued by the state or government; system of measures in the field of economic management; giving a certain direction to economic processes in accordance with the goals, objectives, and interests of the country.

Includes: structural, investment, financial and credit, social, scientific and technical, tax, budget, foreign economic policy.

Economic policy development involves:

Clear definition of goals;

Analysis of alternative economic programs;

Study of past program implementation experiences and evaluation
their effectiveness.

Difficulties in studying Economics"are associated with: a) erroneous and preconceived notions; b) terminological difficulties; c) logically incorrect constructions; d) identification of insufficiently clear cause-and-effect relationships.