• Economics
• Areas of study in economics
• Interdisciplinary studies and cross-application
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• Modern mainstream economics

Modern mainstream economics

Mainstream economics begins with the premise that resources are scarce and that it is necessary to choose between competing alternatives. That is, economics deals with tradeoffs. With scarcity, choosing one alternative implies forgoing another alternative—the opportunity cost. The opportunity cost creates an implicit price relationship between competing alternatives. In addition, in both market oriented and planned economies, scarcity is often explicitly quantified by price relationships.

Understanding choices by individuals and groups is central. Economists believe that incentives and desires play an important role in shaping decision making. Concepts from the Utilitarian school of philosophy are used as analytical concepts within economics, though economists appreciate that society may not adopt utilitarian objectives. One example of this is the idea of a utility function, which is assumed to represent how economic agents rank the choices given to them. Then the utility function ranks available choices from best to worst, and the agent gradually learns to choose the best-ranked choice in the feasible set of his alternatives.

On a microeconomic level, some economists extend economic analysis to all personal decisions. An alternative can be thought of as a vector where the entries are answers not only to questions like "How many eggs should I buy?", but also "How many hours should I spend with my kids?", and "How long should I spend brushing my teeth?".

Modern mainstream economics builds primarily on neoclassical economics, which began to develop in the late 1800s and models choices made in the allocation of scarce resources. Mainstream economics also acknowledges the existence of market failure and some insights from Keynesian economics. It looks to game theory and asymmetric information to solve problems on a microeconomic level. Many important insights on collective behaviour (for example, emergence of organizations) have been incorporated from institutional economics via new institutionalism.