New Microeconomics

8/18/2019 New Microeconomics

1/19

Modern Microeconomics and

Macroeconomics


2/19

Several Paths Mathematical

• Partial Equilibrium

– Alfred Marshall

• General Equilibrium

– Leon Walras

• Distribution – Wilfredo Pareto


3/19

Several Paths (cont! "on#Mathematical

• Laisse$#faire

– Austrian Economics

• %nstitutional

– &horstein 'eblen


4/19

MathematicalM a t h e m a t i c s a n d M i c r o e c o n o m i c s

A l f r e d M a r s h a l l L e o n W a l r a s W i l f r e d o P a r e t o

A n o t o i n e

A u g u s t i n

C o u r n o t


5/19

&he Merin of Paths Paul Samuelson combined )ournot* +evons*

Pareto* Ede,orth and -isher and

concluded that economics anal.sis had /rimaril. t,o concerns0• Equilibrium

• Stabilit.

• Problem is that such formalism lead to littleim/ortance of /artial equilibrium and moreem/hasis on Walras eneral equilibrium


6/19

Paul Samuelson 1e had t,o te2ts that basicall. sha/ed the

economic /rofession bet,een the end of

WW%% until about the earl. to mid 3456s• &he underraduate boo7* Economics* used

ra/hs and ,as basicall. follo,ed the

Marshellian model

• &he raduate boo7* -oundations of Economics*

basicall. follo,ed )ournot and Walras


7/19

Samuelson#1ic7s &he. too7 the eometr. of the earl. 3466s and

after WW%% converted to the mathematics of the3486s and to the /resent

&o ,here 1al 'arian suests that models be builtusin the 9%SS criterion0• 9ee/ it sim/le* stu/id

• &he idea bein find a /roblem and find a sim/le modeland the enerali$ed it

• 1o,ever the em/hasis remained stronl. /artialequilibrium


8/19

&he counter,eiht Milton -riedman

• &he a//roach became 7no,n as the )hicao

School• A//roach is Marshellian

• Economics as an enine of anal.sis rather thanan abstract ,or7 of economic modelin

Gar. :ec7er • &oo7 the sim/le conce/t of ma2imi$ation to

stud. a ,ide variet. of issues


9/19

Modern Microeconomics ;tilit. still holds a stron /osition in the

underraduate stud. but ame theor. is

slo,l. ta7in over at the raduate level Pedao. has created t,o different ,orld0

underraduate and raduate


10/19

Em/irical Economics Econometrics is the merin of Mathematical

Economics and Statistics

%n other ,ords* the formulation of h./othesis frommathematical economics ,ith statistics to formall.

test those h./otheses

=ecall the earliest em/irical ,or7 ,as the Greor.

9in and )harles Davenant la, of demand


11/19

1enr. Moore ;sed statistical /rocedures to test +:

)lar7>s marinal /roductivit. theor. of

,aes* ,hich /redicted that MP?, While there ,as /roblem ,ith his anal.sis

the im/ortant as/ect of it ,as the fact that

he used statistical tools


12/19

1enr. Schult$ "oted that one ot a different elasticit. of

demand if ,e reressed quantit. on /rice or

vice#versa &he im/ortance here is that statistical

measurement is not se/arate from theor.


13/19

Macroeconomics +evon>s Suns/ot &heor.

• =elated business c.cles to the suns/ot c.cles

1enr. Moore• &rade c.cles related to ,eather c.cles


14/19

1eterodo2 Em/iricist Wesle. ) Mitchell

• %nstitutionalist

• Sa, statistics not as a ,a. of testin economictheories

• %nstead he sa, theories as the stories one ,ould

ive to e2/lain em/irical observations• %nitial a//roach of the "ational :ureau of

Economic =esearch (":E=!


15/19

Simon 9u$nets Student of Mitchell

• Develo/ed the modern national income

accountin Wassil. Leontief orani$ed data in the

develo/ment of in/ut#out/ut models


16/19


17/19

&r.ve 1aavelmo &r.ve 1aavelmo is the first to arue that the use

of statistics in economics im/lied that one ,as

searchin for /robabilistic theories

%n other ,ords* the statistics ,ere /art of

understandin economic theor.<

• )orrelation bet,een /rice and quantit. does not

e2/lain su//l. or demand• &heor. needs to be /art of the statistical construct


18/19

)o,les )ommission Alfred )o,les* ,ealth. investment advisor*

s/onsored a commission in 34@ to use

&r.ve 1aavelmo a//roach to e2amineeconomic issues

)ommission ,as first set in )olorado

S/rins* in 34@5 moved to )hicao %n 34B6s moved to CALE


19/19

ther %ssues :a.esian Econometrics

E2/erimental Economists

New Microeconomics

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