The assumptions of microeconomics
From enfascination
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| + | ==The inside story== | ||
As copied off of a 70's economics textbook | As copied off of a 70's economics textbook | ||
| + | Stanley Kaish's "Microeconomics Logic, Tools and Analysis" Harper Row 1976 | ||
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| + | '''What are the basic assumptions of microeconomic analysis?''' | ||
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| + | Unless we indicate otherwise, five assumptions are presumed to hold for our analysis. These are the following: | ||
| + | #''Economic man.'' This term implies that each person under discussion attempts to maximize personal satisfactions and profits. He calculates his opportunities and takes the appropriate action to serve his selfish ends. | ||
| + | #''Mobile resources''. There are no artificial boundaries among economic units. Labor is free to go to work in the most profitable or enjoyable employment. Owners of capital can invest their funds where profits appear most attractive. | ||
| + | #''Reliable, free flows of information''. Everyone knows where the opportunities are. What is more, there iscomplete and instantaneous movement of information. | ||
| + | #''Diminishing returns''. There is such a thing as too much of a good thing. Adding labor to a productive activity eventually diminishes the satisfactions realized from each additional unit of the commodity or service consumed. | ||
| + | #''Divisibility of goods and labor efforts''. Fine, quantitative gradations can be made in measurement. Goods, services, and factors of production are infinitely divisible. In mathematics this assumption is called ''continuity''. | ||
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| + | Given these assumptions, we shall develop a set of analytical tools that will enable us to solve a broad variety of economic problems in many areas. | ||
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| + | ==From Coase== | ||
| + | one assumption of microeconomics is zero transaction cost | ||
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| + | ==From North== | ||
| + | I'm sure this argument has coe fom all over, but it seems to be best articulated by North, but he demonstrates thatt certain social norms or rules must be in effect in order for markets to work as predicted in theory, I suspect that the violated assumptions in these cases extend beyond those currently specified above. | ||
Latest revision as of 20:13, 25 September 2009
The inside story
As copied off of a 70's economics textbook Stanley Kaish's "Microeconomics Logic, Tools and Analysis" Harper Row 1976
What are the basic assumptions of microeconomic analysis?
Unless we indicate otherwise, five assumptions are presumed to hold for our analysis. These are the following:
- Economic man. This term implies that each person under discussion attempts to maximize personal satisfactions and profits. He calculates his opportunities and takes the appropriate action to serve his selfish ends.
- Mobile resources. There are no artificial boundaries among economic units. Labor is free to go to work in the most profitable or enjoyable employment. Owners of capital can invest their funds where profits appear most attractive.
- Reliable, free flows of information. Everyone knows where the opportunities are. What is more, there iscomplete and instantaneous movement of information.
- Diminishing returns. There is such a thing as too much of a good thing. Adding labor to a productive activity eventually diminishes the satisfactions realized from each additional unit of the commodity or service consumed.
- Divisibility of goods and labor efforts. Fine, quantitative gradations can be made in measurement. Goods, services, and factors of production are infinitely divisible. In mathematics this assumption is called continuity.
Given these assumptions, we shall develop a set of analytical tools that will enable us to solve a broad variety of economic problems in many areas.
From Coase
one assumption of microeconomics is zero transaction cost
From North
I'm sure this argument has coe fom all over, but it seems to be best articulated by North, but he demonstrates thatt certain social norms or rules must be in effect in order for markets to work as predicted in theory, I suspect that the violated assumptions in these cases extend beyond those currently specified above.