Theme 3: Microeconomics & Mathematics – Articles + Reading questions
Varian 1987: Microeconomics
Microeconomics Macroeconomics
Definition: Microeconomics is the study of Definition: Macroeconomics is the study of the
individual economic units and their interactions behaviour of economic aggregates
Goal: To understand a single economic unit or Goal: To understand and predict the behaviour
market in isolation of aggregate economic variables
Micro-theory of statistical thermodynamics Macro-theory of classical thermodynamics,
(both attempt to describe the same behaviour, (both attempt to describe the same behaviour,
but from a different approach) but from a different approach)
Individual Aggregate
Full employment Underemployment
Origins of the terms microeconomics and macroeconomics
Ragnar Frisch (micro- and macrodynamics)
Keynes
Wolff (micro- and macroeconomics)
Methods of Microeconomics:
a. Optimization analysis
b. Equilibrium analysis
Economics proceeds by building models of behaviour simplified representations of reality the
essence of building an economic model is the decision of what simplifications to make and
eliminating irrelevant information
Chiang 1974: The nature of Mathematical Economics
Mathematical economics an approach to economic analysis Geometrical methods are
frequently utilized to derive theoretical results
Mathematical vs Nonmathematical Economics
Since mathematical economics is merely an approach to economic analysis, it should not and does
not differ from the nonmathematical approach to economic analysis in any fundamental way
Purpose theoretical analysis: to derive a set of conclusions or theorems from a given set of
assumptions or postulates via a process of reasoning.
Mathematical economics assumptions and conclusions are stated in mathematical
symbols and equations deductive reasoning
Literary economics assumptions and conclusions are stated in words and sentences
Advantages of the use of mathematics instead of words in economic analysis?
The language used is more concise and precise
There exist many mathematical theorems
It keeps us from the pitfall of an unintentional adoption of unwanted implicit assumptions
Concise
Precise
Disadvantages of the use of mathematics instead of words in economic analysis?
The existence of difficulties of communication between mathematical and nonmathematical
economists
Varian 1987: Microeconomics
Microeconomics Macroeconomics
Definition: Microeconomics is the study of Definition: Macroeconomics is the study of the
individual economic units and their interactions behaviour of economic aggregates
Goal: To understand a single economic unit or Goal: To understand and predict the behaviour
market in isolation of aggregate economic variables
Micro-theory of statistical thermodynamics Macro-theory of classical thermodynamics,
(both attempt to describe the same behaviour, (both attempt to describe the same behaviour,
but from a different approach) but from a different approach)
Individual Aggregate
Full employment Underemployment
Origins of the terms microeconomics and macroeconomics
Ragnar Frisch (micro- and macrodynamics)
Keynes
Wolff (micro- and macroeconomics)
Methods of Microeconomics:
a. Optimization analysis
b. Equilibrium analysis
Economics proceeds by building models of behaviour simplified representations of reality the
essence of building an economic model is the decision of what simplifications to make and
eliminating irrelevant information
Chiang 1974: The nature of Mathematical Economics
Mathematical economics an approach to economic analysis Geometrical methods are
frequently utilized to derive theoretical results
Mathematical vs Nonmathematical Economics
Since mathematical economics is merely an approach to economic analysis, it should not and does
not differ from the nonmathematical approach to economic analysis in any fundamental way
Purpose theoretical analysis: to derive a set of conclusions or theorems from a given set of
assumptions or postulates via a process of reasoning.
Mathematical economics assumptions and conclusions are stated in mathematical
symbols and equations deductive reasoning
Literary economics assumptions and conclusions are stated in words and sentences
Advantages of the use of mathematics instead of words in economic analysis?
The language used is more concise and precise
There exist many mathematical theorems
It keeps us from the pitfall of an unintentional adoption of unwanted implicit assumptions
Concise
Precise
Disadvantages of the use of mathematics instead of words in economic analysis?
The existence of difficulties of communication between mathematical and nonmathematical
economists
