Theoretical Economics

 

Theoretical Economics

1. Theoretical Economics:

In this part we discuss characteristics of various economic systems, and also define different economic theories. Basic laws we derive by observing facts, based upon neutral inquiries and studies. Such as law of demand, law of supply, law of diminishing, Marginal ability utility, law of equi-marginal utility, law of increasing and decreasing returns etc. We observe behavior of individuals in different sectors of the economy Such as entrepreneur’s behavior in business and production sector while consumer’s behavior in consumption field Moreover, the activities and performance of different economics, social and cultural organizations are also kept before. It is classified into two types

 i. Positive Economics

 ii. Welfare Economics

 2. Positive Economics

Classical economists David Ricardo, J.S. Mill and N.W senior as well as Robbins and Keynes consider economics as positive science in these part facts and results are defined: “As they are”.

 3. Welfare Economics:

Marshall, Pigou and Canon declared economics as a science of material welfare. They relate it with material requisites of economic and social welfare. They emphasized on basic needs such as, food, clothing and shelter and also gave suggestions for the attainment of these essentials. That's why they are called "welfare economists." In micro economics we deal with positive economics.

4. Mathematical Economics:

 In modern economics importance and significance of mathematics is increasing day by day. As with its help we can analyses facts and problems quantitatively and describe them in numerical form. Hence, the results are more exact, comprehensive and understandable. In mathematical economics use of mathematical formulas have been increased and have become more popular. Initially Prof. Commit introduced mathematics in economic analysis in his book, “Research in Mathematical principles for wealth theory”. Afterwards, Prof. Jevons, Prof. Edge worth, Prof Pareto, Walrus and Kalecki used mathematical formulas in their theories and researches, Prof. A. Fisher explained QTM (Quantity Theory of Money) in terms of formula, and Doctor Alfred Marshall introduced unity method of measurement of elasticity of demand. Prof. Allen gave the formula of Arc elasticity for the measurement of elasticity of demand. Moreover, derivatives are used in explanation of the concepts of elasticity of demand and supply Equations are used for various functional relations of economic variables. Concepts of limits and continuity of functions are also helpful in this respect. Significance of mathematics in various concepts of micro and macroeconomics can be judged keeping in view following points:

 

1) There are various variables which have functional relationship e.g. Income (y), Consumption (C), Saving (S), Investment (I), Price (P), Quantity demand (ad), quantity supplied (as) marginal utility (Mu) etc. These variables are described through equations and are explained graphically with the help of mathematical tools.

 2) Firm's revenue and cost of production are analyzed with the help of tables and curves. Therefore, to study equilibrium of firm and industry, use of mathematical tools is necessary

3) To determine desirable level of income and employment use of tables and diagrams is necessary. Business cycle and interaction of multiplier and accelerator are also explained with the help of tables and formulas.

 4) Economics laws are derived in view of deductive and inductive methods. In this respect, the point view of both, economics and mathematical is logical because both depend on some assumptions. While deriving some laws that's why both are closely related with each other

 5) Mathematicians use symbols for various quantities e.g. x, y, z such symbols are also used for economic concepts and theories e.g. Income (y), Savings (S), Consumption(C), Price (P) etc. In this way our approach becomes simple comprehensive and direct without any ambiguity.

 6) While making the economic policies, it is important to seek help from mathematical tools. So that, the authenticity of the facts and results may be checked accurately So, we can say that, for economic views and researchers we must seek guidance from mathematics because in this way economic theories and terms are presented more accurately and exactly. Thus, in the solution of economic problems, mathematical tools play a significant role.