Basic assumptions of economics

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Basic assumptions of economics

References and Further Reading 1. Law as an Autonomous Practice Most traditional theories of jurisprudence look to uncover the essential or definitive aspects of the institution of law. While these two differ as to their definition of law and legal reasoning, they agree upon some basic central assumptions, determining the conclusions that two philosophical investigations with largely the same aims, can reach.

Because of this it is important to acknowledge some of the assumptions that are held in common by these jurisprudential stances. First, both theories agree upon the conceptual nature of jurisprudence.

Both agree that it is important for a philosophical theory of law to define the core aspects of proper legal practice in order to fulfill the function of philosophical jurisprudence. In fact, much philosophical discussion of law assumes that such a characterization is the essential aim of jurisprudence.

Second in order to arrive at a properly analyzed concept of law, both legal positivism and law as integrity are best constructed from specific techniques of analytic and linguistic philosophy.

These techniques include the investigation and clarification of the way people commonly speak about law and careful parsing of social practice that separate the legal from the non-legal. The third common assumption is that the best way to understand legal practice is to understand the necessary and sufficient qualities that make some rule or statement into a law.

Once Basic assumptions of economics a set of necessary and sufficient conditions is identified or approximated it is thought that the essential aspects of particularly legal practices have been understood.

Instead of following this path, theorists within the law and economics movement have attacked the study of law from another angle. Rather than trying to identify unique conceptual aspects of law, what is advocated is an investigation of legal practices through the means of economic analysis.

The conclusion offered is that legal practice is best understood through its function as a social tool promoting economic efficiency, in common with other social practices. The conclusion offered is that legal practice is best described by its purported function as a social tool aiming at the promotion of economic efficiency - something it has in common with other social practices.

Law as a Tool to Encourage Economic Efficiency So, instead of looking for the unique and defining features of law, the practitioner of law and economics looks at law as a social tool and tries to evaluate it functionally.

What is emphasized is not its uniqueness as an institution, but its place within the general and common economic structure of society. The descriptive claim most often associated with law and economics is that legal practices are best characterized as tools for encouraging economically efficient social relations.

To understand this claim it is important to examine some of the basic concepts used in models of economic reasoning.

Basic assumptions of economics

Basic Concepts in Economic Reasoning Essential to an understanding of the law and economics movement is a set of fundamental concepts. The most central assumption in economics is that human beings are rational maximizers of their individual satisfactions, and, in turn, respond to incentives.

A rational maximizer of personal satisfaction adjusts means to ends in the most efficient way possible. It is important to realize that economics, as understood here, is not restricted to analysis of monetary issues; there are nonmonetary as well as monetary satisfactions. Every potential satisfaction is implicated in the calculus of economic satisfactions and therefore can be investigated according to economic or means-end rationality and the trade-off of costs and benefits.

Normally what is aimed at through economic reasoning is the improvement of efficiency. A more efficient allocation is one that increases the net value of resources.

Efficiency in the allocation of resources is distinguished from equity, which is concerned with justice in the distribution of wealth. Because some people value specific goods higher or lower than others, economic efficiency can often be raised through voluntary transfers of goods.

The most common example of a transfer promoting efficiency is that of a freely entered into contractual relationship.

Because one party to the transaction values money more than the item owned, and the other values the item owned more than the asking price, the exchange produces a net gain in economic goods.

Each person ends up better off than before. Some economists have gone so far as to argue that such a contractual exchange is morally optimal because it works within both Kantian and utilitarian theories of morality. They argue that it works with Kantian theories because a contract is thought to represent a good example of interaction between free and rational agents.

It works with utilitarianism because the idea of wealth maximization intuitively translates into more utility. Economists have a variety of terms to describe possible outcomes of economic exchanges.

For instance Pareto optimality is defined as a point where resources are allocated such that no one is willing to trade further.Economic entity assumption is an assumption under the Generally Accepted Accounting Principles that separates the stakeholders from the business itself.

The business is its ow n entity.. Economic entity assumption is an assumption under the Generally Accepted Accounting Principles that separates the stakeholders from the business itself.

basic assumptions in economics It is seen above that economic laws arc governed by the phrase other things being equal. This means that, while reasoning out economic phenomena, we take certain things for granted, These arc the various assumptions that underlie economic reasoning.

The basic economic assumptions (those taught during the first year of any major in Economics) are pretty well summarised on the concept of 'Economic Rationality'.

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You can check Rabin () for a great discussion on the basic assumptions (A perspective on psychology and economics). The Economics Anti-Textbook: A Critical Thinker's Guide to Microeconomics [Rod Hill, Anthony Myatt] on *FREE* shipping on qualifying offers.

Mainstream textbooks present economics as an objective science free from value judgements; that settles disputes relatively easily by testing hypotheses; that applies a settled body of principles; and contains policy prescriptions supported by.

Chapter 2: Thinking like an Economist Principles of Economics, 8th Edition N.

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Gregory Mankiw Page 2 available production technology. P. 24 (1) Figure 2: The Production Possibilities Frontier. P. 24 (2) It illustrates the potential for inefficient outcomes. All of economics, including microeconomics and macroeconomics, comes back to this basic assumption that we have limited resources to satisfy our preferences and unlimited wants.

Rational Behavior In order to simply model how humans attempt to make this possible, we need a basic behavioral assumption.

Neoclassical economics - Wikipedia