Business and Marketing / Economics Essay


Important Types of Economic Theories

Economic theories are built on observation, data collection, and scientific methods to confirm the conjectures. Once proven to be correct, the economic arguments are used to study and define the real economic phenomenon, predict new outcomes, design and implement policies, etc. Since economic theories play a pivotal role in shaping the economic environment, it is essential to have a holistic and comprehensive approach when discussing various industrial methods.

Since economics is a diverse field, and it deals with individual choice at the microeconomic level to hug economies at the macro-economic level, the economic theories vary in application and design. Moreover, industrial methods are also dependent upon a time as with time consumer behavior and the dynamics of the interaction of market force changes. Hence the economic theories are varied and depend upon the context in which they are applied. Some of the essential types of economic theories are:

Macroeconomic Theories  

Such industrial methods are concerned with governing, explaining, and studying the macro environment. The deal with aspects like the gross domestic product, inflation, recession, stagflation, purchasing power parity, whole and consumer price index, currency exchange rate, bank rate, etc. 

Since these factors are interlinked and dependent upon several other external factors, economic theories in the field of macroeconomics are generally influenced by the practitioner's perception. Such macroeconomic theories might work under one set of conditions and needed to be studied in the context of application and development. 

These types of macroeconomic theories generally make predictions over a more extended period. They can be used to develop long term economic policies. However, one should look at the empirical and theoretical foundation of such theories and test the same against past data to ensure that the results are along predicted lines.

Microeconomic Theories

These types of economic theories are concern with microeconomic factors. Since microeconomic factors like achieving maximum satisfaction for consumers, unit economics for firms, point of consumption and decision making, etc., vary greatly, such theories are studied in isolation.

The fundamental postulate of any microeconomic theory is the concept of individuals striving to achieve maximum satisfaction while consuming any product and service. Such economic theories assume that consumers are well informed and driven by a clear rationale and logic. On the supply side, these theories believe that the products in the market are homogenous, and as such, no firm has the unit advantage over the competitors. 

· Aggregate Demand Theories

These economic theories are developed to explain the aggregate demand function at both macro and microeconomic levels. The total demand depends on several objective factors like real disposable income, tax levels, price of substitutes, availability of raw materials, etc., as well as on several abstract factors like consumer behavior, preferences, trends, social norms, etc., 

Hence the aggregate demand theories in economics are a mix of well-postulated rules and a set of conjectures to cover both the objective and abstract aspects of demand.

Aggregate Supply Theories 

In continuation of demand theories, theories governing the supply side constraints form a pivotal point in economic theories. Aggregate supply theories are more data-driven and objective. These types of approaches focus on the nature of interaction among the factors of production, given that the supply and demand must be in sync to ensure maximum utilization of resource and economic development. Aggregate supply theories help determine many factors like the final product, input cost of the product, the impact of the supply chain on a production line, developing economies of scale, etc.

These types of economic theories are more structures as they have less abstract components. Since these theories explain the supply-side constraints, in economies, such methods are being followed closely to develop a new supply equation to keep pace with rapid technological developments.

Consumer Behavior Theories 

In any sector consumer is the king. It is the consumer who decides the fate pf the product and service, and there must be frameworks to understand the spending and psychological behavior of the consumers. Hence consumer behavior theories are an essential type of economic theory. 

These develop the psychological aspect of consumer behavior and also extrapolate the abstract factors into real terms. These type of theories in economies provide a template which predicts the consumer behavior under certain given conditions. These theories can have applications in both macro and microeconomics. Since these economic theories are developed after extensive groundwork and feedback from the consumers, they are highly subjective. These economic theories depend upon research methods like surveys, interviews, focused group interaction, etc. 

Since these types of economic theories provide information about consumer behavior, these theories are used by marketing firms to design their consumer outreach plan. Moreover, these types of economics are specific and can be used to influence a select group of audiences in a given period.

The equity market, debt market, and credit market Theories

These types of economic theories revolve around credit and debt instruments. These govern how the companies raise funds, government release money into the open market, bank lending rates, and exchange rates governed. Such economic theories govern policies like FDI (Foreign Direct Investment), bond market prices, etc. 

These economic theories help predict the valuation of companies and the exchange rate between different currency rates. Financial products like credit swap instruments, default swap instruments, futures and swap agreements, mortgage-backed securities, exchange securities, etc., are a direct outcome of these economic theories.

Other Theories

Apart from the theories mentioned above, there is another type of economic theory based on probability theoremsImportant Types of Economic Theories, which gives the probability of certain events. Game theory is a variety of such industrial methods that help predict the likelihood of something happening given certain conditions. Such approaches are used to form conjectures and discuss the competitive advantage a company might have.

Economic theories have a wide variety of applications and need to be postulated in a phased manner to ensure maximum utilization.


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