Abstract
The economic principle is presented as the strategy best suited to deal with the problem of scarcity. Acting in accordance with this principle yields efficient results, such that there is no waste of resources. Consumers and firms are assumed to be agents who act economically. The structure of interaction between consumers and firms is outlined as a circular flow. A positive, i.e., merely observing and describing, analysis of this interactive structure is distinguished from a normative one, which evaluates the outcomes of interaction according to the criteria of efficiency, justice, and stability. (Efficiency is in the centre of mainstream economic analysis. This is so because the impetus for acting efficiently follows directly from the fundamental economic problem of scarcity. Therefore, this criterion receives particular attention in our discussion.) From any violation of these criteria, a justification of governmental action may be deduced. As two fields of governmental action, the choice of economic system and interventions in the economic process are discussed.
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Notes
- 1.
The term «production» is used in a very general context. It not only refers to the production of goods but also to the abatement of bads, especially the reduction of emissions.
- 2.
Cost minimisation is a necessary condition for profit maximisation, see 7 Sect. 6.3, below. From society’s point of view, however, such a recommendation is only decisive if the factor prices correctly reflect the social scarcity of the product factors used.
- 3.
An example is Article 56 of the German Constitution (Grundgesetz). Here, the president (Bundespräsident/in) takes an oath assuring that he/she will serve the welfare of the German people («dem Wohle des deutschen Volkes»). According to Article 64 (2), the German chancellor (Bundeskanzler/in) is obliged to take the same oath.
- 4.
- 5.
In more advanced macroeconomic analyses, two further types of economic agents are taken into consideration, namely the «state» and «foreigners». The role of the state will be discussed in 7 Sect. 3.5 below.
- 6.
This assumption serves to simplify our analysis. In reality, private households are contributing to an economy‘s investment expen diture as well through the purchasing of new houses (see Mankiw 2016).
- 7.
The way of proceeding (typical) within microeconomics will be discussed in more detail in Part II below.
- 8.
Nonetheless, the mere choice of human needs as our point of departure clearly represented a normative act.
- 9.
See Sen (2009) for a discussion of the idea of justice.
- 10.
Readers who are either much younger or much older than the authors might not recognise that this is taken from Pink Floyd’s The Wall.
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Endres, A., Radke, V. (2018). The Economic Approach. In: Economics for Environmental Studies. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-54828-8_3
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