Classical Economics
Created: 2022-12-27
Status: #soil
Last Edited: 2022-12-27
Topic: economics
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Classical economics is an economic theory that originated in the late 18th century and was developed by Adam Smith, David Ricardo, and other British economists. It emphasizes the role of free markets in determining prices, wages, and the distribution of wealth. Classical economists believe that these markets will be self-regulating if left to operate according to their own laws. This means that the market will adjust to changing conditions on its own, without government intervention or regulation. This is in some ways antithetical to Keynesian Economics.
Classical economics focuses on macroeconomic phenomena such as gross domestic product (GDP), unemployment, and inflation, as well as microeconomic topics such as consumer choice.
What are the problems with classical economics?
Classical economics does not take into account the potential for government intervention or externalities, such as pollution. It also assumes that the market is perfectly competitive and all participants have perfect information about it. This is not always the case in reality, and can lead to inefficient outcomes.
Additionally, classical economics assumes that all markets will clear, or reach equilibrium. This is not always true in reality, as some markets may remain in disequilibrium for long periods of time due to external factors such as government regulation or technological developments.
Finally, classical economics assumes a static view of the economy and does not take into account changes over time or how economic forces interact with each other.