Economic theory refers to a set of principles or models that explain how economies function, including production, distribution, and consumption of goods and services. These theories help economists understand economic behavior and make predictions about future trends.
Related terms
Supply and Demand: The fundamental forces that determine prices in a market economy; supply represents producers' willingness to sell at various prices while demand represents consumers' willingness to buy at various prices.
Opportunity Cost: The value of what must be given up when making choices due to scarcity; it represents the next best alternative foregone when making decisions.
Keynesian Economics: An economic theory developed by John Maynard Keynes during the Great Depression that advocates for government intervention through fiscal policies to stabilize the economy, particularly during times of recession.