Applied Economics, Economic Theory, Grade 12 Applied Economics

1. Economic Theories
Pre-course to Apllied Economics

2. ECONOMIC
THEORIES
1. THEORY OF SUPPLY AND DEMAND
2. CLASSICAL THEORY OF ECONOMICS
3. NEOCLASSICAL ECONOMICS
4. KEYNESIAN ECONOMIC THEORY
5. MULTHUSIAN ECONOMIC THEORY
6. MARXISM AND MARKET SOCIALISM
7. LAISSEZ FAIRE CAPITALISM
8. MONETARISM ECONOMIC THEORY
9. TRAGEDY OF THE COMMONS
ECONOMIC THEORY
10. NEW GROWTH THEORY

3. Malthusian Economics
Malthusian economics refers to the idea that, while population growth may be exponential, the growth of food
supply and the supply of other resources is linear. This theory states that when a population grows over time
and outpaces a society's ability to produce resources, its standard of living may reduce and trigger a large
depopulation event. (Malthusian Catastrophe)
With this, Malthusian economics supports population control efforts to avoid unchecked growth rates. Various
schools of thought have largely discredited Malthusianism as it relates to agricultural production, but discourse
around environmental degradation, resource depletion and scarcity persists.
Such a catastrophe inevitably has the effect of forcing the population to "correct" back to a lower, more easily
sustainable level (quite rapidly, due to the potential severity and unpredictable results of the mitigating factors
involved, as compared to the relatively slow time scales and well-understood processes governing unchecked
growth or growth affected by preventive checks).--Thomas Robert Malthus

4. Malthus suggested that while technological advances could
increase a society's supply of resources, such as food, and
thereby improve the standard of living, the abundance of
resources would enable population growth, which would
eventually bring the supply of resources for each person back
to its original level. (An Essay on the Principle of Population)
Malthus predicted that natural population growth would
inevitably outpace agricultural output, ultimately resulting in
famine and other catastrophes until the population was
reduced below a sustainable level.
The cycle is endless, he believed: Relative abundance causes
an increase in fertility until the population again grows to an
unsustainable level and collapses.
But remember he made this through his observation of the 18th
century England. Before the industrial revolution

5. MARXISM AND MARKET SOCIALISM
MARXISM ECONOMIC THEORY-Marxism is a type of socioeconomic theory that
interprets capitalism's impacts on an economy's development, labor and productivity.
This theory posits that a capitalist society comprises two socioeconomic classes—
the bourgeoisie, or the ruling class, and the proletariat, or the working class. In
Marxism, the bourgeoisie controls the means of productions and the proletariat owns
the labor that produces economic goods with value.
With this, the bourgeoisie's motivation lies in deriving the most work from the
proletariat while paying the least amount possible in wages, creating an exploitative
economic balance. Marxist economists argue that this inequality may lead to
revolution.
MARKET SOCIALISM- Market socialism, often called liberal socialism, is a theory
that proposes the creation of an economic system that incorporates elements from
both socialist planning and free enterprise. In a market socialist system, capital is
owned cooperatively, but market forces define production and exchange rather than
government oversight. Different market socialist models direct the profit generated
by socially owned firms toward varying channels, such as employee remuneration,
public financing or a social dividend.

6. LAISSEZ FAIRE CAPITALISM
Laissez-faire is a theory of free-market capitalism directly opposed to government
intervention such as regulation, subsidies, minimum wages, trade restrictions and
corporate taxes. This theory states that economic prosperity is more obtainable in
systems that governments "leave alone"—the direct translation of the French term
laissez-faire.
Economists that adhere to this theory argue that economic competition instills self-
regulation that doesn't necessitate federal involvement. Laissez-faire capitalists
promote this theory as a pathway in achieving economic prosperity, but it provides no
inherent protection for vulnerable populations.
Developed by the French Physiocrats during the 18th century. Laissez-faire advocates
that economic success is inhibited when governments are involved in business and
markets.
Economic competition constitutes a "natural order" that rules the world

7. MONETARISM ECONOMIC THEORY
Monetarism is a macroeconomic theory that promotes the idea that governments can achieve economic
stability by controlling monetary supply. The key principle of monetarism is that the total amount of
money circulating in an economy is the main factor that determines its growth.
The total amount of money in an economy is the primary determinant of economic growth.
Central to monetarism is the quantity theory of money, which states that the money supply (M) multiplied
by the rate at which money is spent per year (V) equals the nominal expenditures (P * Q) in the
economy.
Monetarism is closely associated with economist Milton Friedman, who argued that the government
should keep the money supply fairly steady, expanding it slightly each year mainly to allow for the natural
growth of the economy.
Monetarism is a branch of Keynesian economics that emphasizes the use of monetary policy over fiscal
policy to manage aggregate demand, contrary to most Keynesians.
Monetarism is an economic school of thought which states that the supply of money in an economy is
the primary driver of economic growth. As the availability of money in the system increases, aggregate
demand for goods and services goes up. An increase in aggregate demand encourages job creation,
which reduces the rate of unemployment and stimulates economic growth.

8. TRADEGY OF THE COMMONS THEORY
The tragedy of the commons is a theory that explains an economic problem relating to the consumption
of resources and the over-exploitation of resources unregulated by formal governing bodies. This theory
states that individuals who have unrestricted access to a resource are likely to act within their own self-
interest and, through collective action, may deplete the resource in its entirety.
The tragedy of the commons is an economic problem where the individual consumes a resource at the
expense of society.
If an individual acts in their best interest, it can result in harmful over-consumption to the detriment of
all. This phenomenon may result in under-investment and total depletion of a shared resource.
In 1968 evolutionary biologist Garrett Hardin published
"The Tragedy of the Commons" in the peer-reviewed
journal Science, which addressed the growing concern of
overpopulation. Hardin used an example of sheep
grazing land, taken from the early English economist
William Forster Lloyd.

9. NEW GROWTH ECONOMIC THEORY
Humans' desires and unlimited wants foster ever-increasing productivity and economic growth. It
argues that real gross domestic product (GDP) per person will perpetually increase because of
people's pursuit of profits.
The theory argues that innovation and new technologies do not occur simply by random chance.
Rather, it depends on the number of people seeking out new innovations or technologies and how hard
they are looking for them. People also have control over their knowledge capital—what to study, how
hard to study, etc. If the profit incentive is great enough, people will choose to grow human capital and
look harder for new innovations.
Knowledge is treated as an asset for growth that is not subject to finite restrictions or diminishing
returns like other assets such as capital or real estate. Knowledge is an intangible quality, rather than
physical, and can be a resource grown within an organization or industry.
Achieving such knowledge-driven growth requires a sustained investment in human capital. This can
create an environment for skilled professionals to have an opportunity to not only fulfill their primary
jobs but also explore the creation of new services that can be of benefit and use to the broader public.

10. PROCESSING ECONOMIC
THEORIES