Microeconomic Theory Old and New: A Student's Guide

Microeconomic Theory Old and New: A Student's Guide

Microeconomic Theory Old and New: A Student's Guide

Microeconomic Theory Old and New: A Student's Guide

Synopsis

Microeconomic Theory Old and New: A Student's Guide has two main goals. The first is to give advanced undergraduate and graduate students an understanding of the core model of economics: Walrasian general equilibrium theory. The text presents in detail the three building blocks of Walrasian theory- establishing Pareto efficiency in a barter economy, establishing the efficiency of competitive markets, and accounting for market failure. Each is discussed verbally, graphically, and using mathematics. After reading this book, students will have an understanding of how the seemingly disparate pieces of conventional economics fit together as a system. Although the text focuses on the intellectual framework of standard economic theory, relevant mathematical techniques are discussed.

The second goal is to present contemporary extensions and emerging alternatives to the Walrasian model. Some of the theoretical inconsistencies in the model are presented, drawing on the work of Samuelson, Boadway, Chipman and Moore, Ng, and Suzamura, among others. The text then presents challenges to the basic assumptions of the Walrasian system, posed by findings in behavioral economics and evolutionary game theory.

Understanding both the Walrasian system and the theoretical and experimental critiques of classical economics is essential to those who ultimately work within the traditional framework and to those looking for an alternative, making this a must read for all students of economics.

Excerpt

Let us return to the state of nature and consider men as if… sprung
out of the earth, and suddenly, like mushrooms, come to full
maturity without any kind of engagement to each other.

Tfcm as Hobbes, De Cive; or, The Citizen [1651], edited with an
introduction by SterlingP. Lamprecht (New York: Appleton-Century
Crofts, 1949), 100

The Foundation of Utility Theory—Direct
Exchange in a Pure Barter Economy

Imagine you are driving along a highway behind a truck loaded with merchandise. A box falls out and lands on the side of the road and you stop to take a look and examine the contents. The box is full of CDs (compact discs) of all sorts—classical music, country and western, hip-hop, jazz, Hawaiian, and blues. There is nothing in the box to indicate ownership—no invoice, no name on the box—and you did not notice the name on the truck. You are on your way to your economics class and, feeling slightly guilty about taking the box, you decide to distribute the CDs to your classmates. Suppose there are twenty people in your class and you have 500 CDs to hand out. You start handing t hem out r andomly, n ot n ecessarily evenly—some people en d u p with lots of CDs and some with only two or three. So now there is a group of twenty people sitting around a table with 500 CDs randomly distributed and unevenly divided a mong them. This sets the stage for l earning ab out h ow economists think about prices, markets, free trade, social welfare, utility, and efficiency.

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