BSEN 401 Lecture Notes - Prometheus Books

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Alfred Marshall, the founder of modern Microeconomics in 1890, defined Economics as
“the study of mankind in the ordinary business of life; it examines that part of individual and
social action which is most closely connected with he attainment and with the use of the material
requisites of well-being.”1 Recent textbooks prefer the following definition: “Economics is the
study of how society chooses to allocate its relatively limited resources among the unlimited
wants of its members.” Marshall‟s definition is more general and compatible with any approach
to Economics. The textbook definition uses the most important terms in microeconomics
scarcity, choice, resource, allocation, and wants but also contains the assumption that human
wants are unlimited. This approach follows from the understanding of an economic good as
scarce; i.e., one for which wants (Demand) are greater than the availability quantity (Supply). If
quantity is greater than wants such as for oxygen, there is no scarcity and thus no problem of
allocation among choices. The statement that wants are unlimited ensures that there will always
be economic goods since wants will always expand faster than our technological ability to satisfy
them.
Economic theory begins with clear definitions and simplifying assumptions and then
proceeds by logic to conclusions about economic relationships. This approach appears definitive
in its abstraction but is based on years of empirical observation and debates. The definitions and
assumptions are simplified to facilitate the logical analysis but this simplification is the source of
most criticism of the theory since the subsequent logic is usually unassailable. The issue of
assumptions is at the heart of the distinction between „positive‟ and „normative‟ economics.
Most modern economists subscribe to positive economics, which claims to describe reality
through empirical observation without introducing assumptions about what „ought to be‟. The
1 Alfred Marshall, Principles of Economics (Prometheus Books, 1997), 1
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Document Summary

Alfred marshall, the founder of modern microeconomics in 1890, defined economics as. The textbook definition uses the most important terms in microeconomics scarcity, choice, resource, allocation, and wants but also contains the assumption that human wants are unlimited. This approach follows from the understanding of an economic good as scarce; i. e. , one for which wants (demand) are greater than the availability quantity (supply). If quantity is greater than wants such as for oxygen, there is no scarcity and thus no problem of allocation among choices. The statement that wants are unlimited ensures that there will always be economic goods since wants will always expand faster than our technological ability to satisfy them. Economic theory begins with clear definitions and simplifying assumptions and then proceeds by logic to conclusions about economic relationships. This approach appears definitive in its abstraction but is based on years of empirical observation and debates.

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