ssssgdSchools of Economic

Thought
 Terminology
Economics: The Social Science that describes the factors that
determine the production, distribution, and consumption of
goods and services
Microeconomics: analyzes the behavior of basic elements in
the economy, including individual agents and markets, their
interactions, and the outcome for interactions
Macroeconomics: analyzes the entire economy and issues
affecting it, including unemployment of resources (labor,
capital, and land), inflation, growth, and policies that address
it (monetary & fiscal)
4 Major schools of Economic Thought
 Supply-and-Demand Model
Originated with Alfred Marshall in the late 19th century
Distinguishes between the demand side of a market and the
supply side
Changes in conditions on either side of the market affect the
quantity of the good and its price
**Helpful idea, this model isnt 100% real world
Alt Causes Institutions, discrimination poverty, power,
uncertainty, race, gender, etc.
 Neoclassical
Based on Stanley Jevons, Leon Walras, and Wilfredo Pareto,
Built of Adam Smith
Most common form of econ taught in HS and College
Justifies international free trade, privatization, deregulation,
cuts to social programs, and other small government policies
The model focuses on smoothly functioning, perfectly
competitive markets
Government policy interferes with these perfectly competitive
markets, leads to inefficiency
Problems arise when efficiency is the idea of perfection
Notions of fairness, human needs, race, gender, power,
poverty, and environment are not included in the efficiency
model
 Austrian
Joseph Schumpeter, Friedrich von Hayek, Ludwig von Mises
Emphasizes role of business entrepreneur
Stresses notion of innovation by creative, risk takes that
drives economic progress
Waves of Creative Destruction
Old business and technologies become obsolete and new ones
are created
Paints picture of every can get by if they work hard,
overlooks race, gender, class, etc.
 Keynesian
Popularized by John Marnard Keynes
Argues government has an important role for government in
the economy
Policies are used to manage depressions, booms,
unemployment, inflation, deflation, stagnation
See Introduction of government into the economy: New Deal,
Building of Interstate
Problem: How much government is too much government?