Also available on: Charlie's Angel

Economic Theory: Overview

Classical economic theory is really only about the rationing of resources.  Price theory, essentially another name for classical or neo-classical economic theory, describes the system of using prices as a rationing tool.

The way in which economic theory speaks to the social good relates to statements about the effectiveness of price and markets to ration resources.  Price theory states that under certain market conditions, market forces lead to allocative efficiency.  This raises two obvious questions: What is allocative efficiency? and What are the conditions that must be met?  And how do these relate to the social good?

After we understand these concepts, it is clear that economic theory has limitations to its discourse on the socially optimal, but still has some valuable things to say about how markets, which are indispensable to our means of allocating resources, do distribute resources.  And it is clear that we need to understand these theories, the limitations of markets, and the limitations of the theories to make informed decisions about counteracting or supplementing the effects of markets.  For this reason we will then take a brief look at what very basic economic analysis looks like.

Once we have an idea of how economic theory relates to the social good and how it is done, we will try to focus economic analyses on specific issues, the public policy hotspots.