Emerging Theories and Models in Contemporary Economics

This article discusses the emerging theories and models in contemporary economics and their relevance to modern business practices. It explores theories such as rational expectation theory, monetarism theory, neoclassical economics theory, and Marxist economics theory. The article highlights the relationship between these theories and current business practices, including setting prices, managing resources, and distribution of income.

Contemporary Economic
Analysis

Table of Contents
TASK 2............................................................................................................................................1
Emerging theories and models in 21st century contemporary economics with those of the 20th
century, and relate both of these to modern business practices..................................................1
REFERENCES................................................................................................................................4

TASK 2
Emerging theories and models in 21st century contemporary economics with those of the 20th
century, and relate both of these to modern business practices.
In the aspect of economics there are vital range of models and theories have been
developed by economists. Each theory and model of economics contributes in a significant
manner in current business environment. It depends on business entities that how well they
implement these theories in their business scenario. Herein below some key theories of 20th and
21st century are mentioned along with their relation with modern business practices:
 Rational expectation theory – This theory was evolved in year 1970 which defines that
people behave rationally in accordance of information about economy (About modern
and traditional theories, 2019). As per this theory, people will act in accordance of their
expectations and public policy of government will be affected due to their actions. This
theory based on beliefs that market condition is too competitive and prices of products
manages in according to variation in the demand. The point on that people have enough
range of information then prices of products and services can be sticky in a downward
direction. It is so because if they go up then prices can be fell down. Another assumption
of this theory is that enlargement policy of government will raise inflation rate without
increasing employment because of economical actors such as households and businesses.
Relation of this theory with current business practice- In the current business scenario, this
theory is linked in setting prices of products and services (Nikaido, 2016). This is so because if
people will behave in accordance of economical condition then demand will be affected. As a
result, business entities will tend to set price accordingly. In addition, the rational expectation
theory also contributes in order to keep inflation rate in a commanding position.
 Monetarism theory- This theory is much more similar as above mentioned rational
expectation theory. The monetarism theory presents a modern way of classical theory
which believes in flexibility of wage and price system. Similar as classical theorists, they
believe that government must remain away from economical stabilization in their view,
markets are competitive along with higher degree of stabilization of macro economic.
These policies as expansionary monetary policy will become cause of price instability.
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This theory is of modern era and has significant impact on company's performance and
policies in such manner:
Relation of this theory with current business practice – As above stated that this theory is based
on then monetary policy of a particular nation. By help of this policy, business entities can
become aware about the economical condition and instability as well as according to it, they can
set prices of products and services effectively. Though, this policy is not effectively applied by
companies because under it intervention of government is more. As well as it can not be applied
in all forms of business entities because it is suitable for large companies.
 Neoclassical economics theory- This is one of the main theory of 20th century as it was
replacement of previous classical economic theory. It is integrated with the original
classical cost of production theory along with the utility to define commodity and price of
factors. In addition, this theory accented use demand and supply as determinants of value
of exchange. The assumption of this theory is that everyone has freedom to access the
information which they need for making better judgements. This assumption create it
possible to minimise judgements to a mechanical application of rules in order to optimise.
So in accordance of neoclassical view, people's efficiency to increase the value of output
will impact to the productivity and assess the allocation of monetary & anti monetary
resources. As well as effectively distribution of income. Basically, this theory is
grounded in the rejection of Marxist economics and as per the belief which the external
environmental system will assure an effective and better allocation of resources.
Relation of this theory with current business practice – Though, this theory is of 20th century but
still has a significant impact on current business entities. It has become a dominant economical
doctrine, specially in the aspect of United state of America. By applying this theory in current
business entities, it become easier for companies to manage their overall resources as well as
they can allocate financial and non financial resources in accordance of activities (Brim, 2017).
Apart from it, this theory is also used by government of nations in order to check distribution of
income. Due to its effectiveness, this theory is being used in the context of USA as their
governance determine proper allocation of financial resources as well as assure equal distribution
of income.
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 Marxist economics theory– Similar as above mentioned theory, this was also replacement
of classical theory. This is theory of modern era which was evolved in order to find out
issues of classical capitalist economics. This theory predicts cycle of capitalist which will
lead to collapse of capitalism. According to Marxist theory, these cycle will be
characterised by reserve army of unemployed, decreasing rate of revenues, crises of
businesses and many more. The neo-Marxist theory applies on both historical dimensions
and in their description of economical relations, behaviour and outputs. Marx argued that
in rationally and objective pursuing their economical benefits. In addition,
Relation of this theory with current business practice – Same as the above mentioned theories,
this theory also contributes in current business scenario. As above stated that it is linked with the
proper management in the case of decreasing revenue of business entities (Becker, 2017). This
becomes possible because by help of it, manager of companies can analyse economical factors
and on the basis of it they find out key cause of lower financial performance.
So, these are some theories of 20th and 21st century which are useful in the aspect of recent
business scenario. Apart from, this is important to know that these theories are not limited to
companies but also contributes to government also.
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REFERENCES
Books and journal:
Becker, G .S., 2017. Economic theory. Routledge.
Brim, O., 2017. The economic theory of representative government. Routledge.
Nikaido, H., 2016. Convex structures and economic theory. Elsevier.
Online:
About modern and traditional theories, 2019. [online] available
through:<https://science.jrank.org/pages/9055/Economics-Major-Theories.html>
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