ADVENTURES IN ECONOMICS

ADITH VENUGOPAL*

Abstract

The invisible hand- 1776 Adam smith suggest leave self-interested

traders to compete with one another.

The Paradox of Thrift Savings and spending habits that influence the

economy.

The Philips Curve- Balance of inflation rate and Unemployment rate.

John Maynard Keynes Theory to overcome great depression.

John Nash Theory- Equilibrium theory.

*MBA student, SNGCE, Kolenchery

Key words; Equilibrium, savings & investment, wages & employment,

market structure.

INTRODUCTION

Adventures in economics

Economics is a dynamic science - changing to reflect the shifting trends

in economic affairs, in the environment, in the world economy, and in society at

large. According to Adam smith who is known as the father of economics, he

told that economy is concerned with an enquiry into the nature and causes of

wealth of nations. The early economists called economics, the science of

wealth. The study of economics has passed through several decades merging

with several theories that made the wealth and welfare of the world, is cracking

with new inventions. We here interested to familiarise the major adventures

theories related to the wealth of our nations contributed by them, which is

directly related to the wealth of each of people in the nation . In this literature

review we make an attempt to familiarise the theory of invisible hand,

Keynesian theory, the paradox of thrift theory, john nashs equilibrium theory

and the Philips curve. Adam smith in his work the wealth of nations he

formulated the key theories of market driven economics. Then we go through

the theory of j.M Keynesian. He criticised says low supply create its own

demand. The Philips curve shows the relationship between employment rate

and inflation and its reflection on growth of the Nations. In 1949, an economist

wrote a paper which 45 years later was to win a Nobel prize for economics. He

earned a doctorate in 1950 with a dissertation on non-cooperative games. He is

none other than John Nash. His theory is renowned as Nashs Equilibrium

theory.

Need for Study

The study is to make an awareness about the most famous as well as relevant in

our current economic scenario. as we are the core part of the economy we must

have the knowledge about the different adventures and brilliant works by the

devoted personalities in the world. We horned them with the Nobel Prize. The

efforts and sacrifices they had taken are appreciated and we are bound to receive

and recognise their adventures contributions .here we try to expose the major

adventures in the economics by some of the economic scholars

John Maynard Keynes

John Maynard Keynes is considered by many to be the greatest economist

of the twentieth century. His major work, the general Theory of Employment,

Interest, and Money, had a profound impact on macroeconomics, both thought

and policy. Keynes was born in Cambridge, England, on June 5, 1883. He

studied economics at Cambridge University, where he became a lecturer in

economics in 1908. During the World War I, Keynes worked for the British

treasurys representative at the Versailles Peace Conference. He resigned from

the British delegation at the conference to protest the harsh terms being imposed

on the defeated countries. His resignation and the publication of the Economic

Consequences of the Peace (1919) made him an international celebrity.

In 1936, Keynes published The General Theory. It was a time of world

recession (it has been estimated that around one-quarter of the U.S labour force

was unemployed at the height of the Depression) and Policymakers were

searching for ways to explain the persistent unemployment. In the book, Keynes

suggested that an economy could come to equilibrium at less than potential

GDP. More important, he argued that government policy could be altered to end

recession. His analysis emphasized aggregate expenditures. If private

expenditures were not sufficient to create equilibrium at potential GDP,

government expenditures could be increased to stimulate income and output.

This was a startling concept. Most economists of the time believed that

government should not take an active role in the economy. With his General

Theory, Keynes started a revolution in macroeconomics

The Paradox of thrift

People generally believe that saving is good and that more saving is better.

However, if every family increased its saving, the result could be less income

for the economy as a whole. In fact, increased saving could actually lower

savings for all households. An increase in saving may provide an example of the

paradox of thrift. A paradox is a true proposition that seems to contradict

common beliefs. We believe that we will be better off by increased saving, but

in the aggregate, increased saving could cause the economy to be worse off. The

paradox of thrift is a fallacy of composition: the assumption that what is true of

a part is true of the whole. It often is unsafe to generalize from what is true at

the micro level to what is true at the macro level.

Nash Equilibrium

In game theory, the Nash equilibrium is a solution concept of a non-

cooperative game involving two or more players, in which each player is

assumed to know the equilibrium strategies of the other players, and no player

has anything to gain by changing only their own strategy. If each player has

chosen a strategy and no player can benefit by changing strategies while the

other players keep their unchanged, then the current set of strategy choices and

the corresponding payoffs constitute a Nash equilibrium.

Stated simply, Amy and Will are in Nash equilibrium if Amy is making the best

decision she can, taking into account Will's decision, and Will is making the

best decision he can, taking into account Amy's decision. Likewise, a group of

players are in Nash equilibrium if each one is making the best decision that he

or she can, taking into account the decisions of the others in the game

Applications

Game theorists use the Nash equilibrium concept to analyze the outcome of

the strategic interaction of several decision makers. In other words, it provides a

way of predicting what will happen if several people or several institutions are

making decisions at the same time, and if the outcome depends on the decisions

of the others. The simple insight underlying John Nash's idea is that one cannot

predict the result of the choices of multiple decision makers if one analyzes

those decisions in isolation. Instead, one must ask what each player would

do, taking into account the decision-making of the others.

Nash equilibrium has been used to analyze hostile situations like war and arms

races (see prisoner's dilemma), and also how conflict may be mitigated by

repeated interaction (see tit-for-tat). It has also been used to study to what extent

people with different preferences can cooperate (see battle of the sexes), and

whether they will take risks to achieve a cooperative outcome (see stag hunt). It

has been used to study the adoption of technical standards, and also the

occurrence of bank runs and currency crises (seecoordination game). Other

applications include traffic flow (see Wardrop's principle), how to organize

auctions (see auction theory), the outcome of efforts exerted by multiple parties

in the education process, regulatory legislation such as environmental

regulations (see tragedy of the Commons), and even penalty kicks

in soccer (see matching pennies).

The invisible Hand

In economics, the invisible hand of the market is a metaphor used by Adam

Smith to describe the self-regulating behaviour of the marketplace. Individuals

can make profit, and maximize it without the need for government intervention.

The exact phrase is used just three times in Smith's writings, but has come to

capture his important claim that individuals' efforts to maximize their own gains

in a free market may benefit society, even if the ambitious have no benevolent

intentions

He suggested that the self interested trades compete with one another, the

invisible hands shows who charge less. Leave people alone to buy and sell

products. That means the tendency of market drive towards an equilibrium

point. Where MB=MC.

- Free individuals expressing themselves the freedom of choice - Free individuals expressing themselves using there resources in freedom

of enterprise.

This free people with that government intervention

(from graph) in surplus

This free people with that government intervention with that anything like

that happening, having a tendency to drive equilibrium to these particular point.

In shortage: Free individuals when there is a shortage have a tendency to arrive

equilibrium point. The invisible hand automatically drive them towards these

points.

These individuals (customers and business) going to do that best for them. In

terms of freedom of choice.

Business- Going to do that best for them in terms of freedom of enterprise

Customers- Going to do best for them in terms of freedom of enterprise

If the market do not in equilibrium the invisible hand forces to the equilibrium point.

Philips curve

Alban William Housego (A. W. Bill Phillips), MBE (18 November 1914 4

March 1975) was an influential New Zealand economist who spent most of his

academic career at the London School of Economics (LSE). His best-known

contribution to economics is the Phillips curve, which he first described in 1958.

An economic concept developed by A. W. Phillips stating that inflation and

unemployment have a stable and inverse relationship. According to the Phillips

curve, the lower an economy's rate of unemployment, the more rapidly wages

paid to labor increase in that economy. The theory states that with economic

growth comes inflation, which in turn should lead to more jobs and less

unemployment. However, the original concept has been somewhat disproven

empirically due to the occurrence of stagflation in the 1970s, when there were

high levels of both inflation and unemployment.

CONCLUSION

The theories we have presented are from to the major stream of economics

which forms the fundamentals of the study of wealth of Nation. In the theory of

invisible hand, Adam Smith suggested that to leave self interested traders to

compete with one another. The findings of this theory are still evident in our

economy. In Paradox of thrift theory we have a clear explanation on the

relations between savings habit and employment rate in an economy .In

Keynesian theory, John Maynard Keynes inferred that a proper balance should

be maintained between aggregate supply and aggregate demand for the

incremental growth of the GDP. All the above mention; theories have a greater

impact on the smooth and efficient functioning of an economy.