Economic Theories

Economics is defined in various ways, but scarcity is always part of definition. The most general definition of economics is perhaps: "Economics is the discipline studying the organization of economic activities in society" (Witztum, 2011). According to Slavin (1989) economics is a set of tools that enables us to use our scarce resources efficiently. The end result is the highest possible standard of living. Theory is defined as a supposition or a system of ideas intended to explain something, especially one based on general principles independent of the thing to be explained. Initial stage of any theory is the definition of the subject matters under investigation.

Economic theory is a broad concept for a well-substantiated explanation and understanding of commercial activities such as the production and consumption of goods.

The Wealth of Nations written by Adam Smith (Smith, 1776) is usually referred as the first classical economic concept or theory. Under this theory little government intervention is necessary to help support a society. Smith and his followers believed that when an individual pursues his self-interest, he indirectly promotes the good of society. In The Theory of Moral Sentiments, Smith alone wrote: “How selfish soever man may be supposed, there are evidently some principles in his nature which interest him in the fortune of others and render their happiness necessary to him though he derives nothing from it except the pleasure of seeing it” (Smith, 1759). Therefore, self-interested competition in the free market would tend to benefit society as whole.

Mainstream economic theory relies upon a priori quantitative economic models. 


Slavin, S. L. (1989). Introduction to Economics. Irwin, Boston.

Smith, A. (1776). Nature and Causes of the Wealth of Nations (Wealth of Nations). Available on:

Smith, A. (1759). The Theory of Moral Sentiment. Available on:

Witztum, A. (2011). Introduction to economics. University of London.


  • Theory of commercial activities
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