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the nature of market competition and economic welfare

Contemporary microeconomic theory evolved steadily without fanfare from the earliest theories of how prices are determined. Macroeconomics, on the other hand, is rooted in empirical observations that existing theory could not explain. How to interpret those anomalies has always been controversial. There are no competing schools of thought in microeconomics—which is unified and has a common core among all economists. The same cannot be said of macroeconomics—where there are, and have been, competing schools of thought about how to explain the behavior of economic aggregates. Those schools go by such names as New Keynesian or New Classical. But these divisions have been narrowing over the past few decades (Blanchard, Dell’Ariccia, and Mauro, 2010).

Microeconomics and macroeconomics are not the only distinct subfields in economics. Econometrics, which seeks to apply statistical and mathematical methods to economic analysis, is widely considered the third core area of economics. Without the major advances in econometrics made over the past century or so, much of the sophisticated analysis achieved in microeconomics and macroeconomics would not have been possible.