3. Microeconomics & Mathematics
Knowledge & Comprehension
Microeconomics is a sub-field of economics concerned with individual decision-makers (for example
households or firms), as they allocate resources using markets and prices. The nature of the kind of
reasoning used is mathematical and microeconomics uses deductive reasoning; involves forming
specific conclusions (truth statements) from prior established principles (from general to a specific
situation).
1. What do Gravelle and Rees call the basic elements and concepts of microeconomics?
Goods and services or commodities
Prices expressed in a numeraire of as an abstract unit
Markets
Economic agents either consumers or firms
Rationality
Method of analysis
2. Provide a definition of markets. Why might they be called the central problem of
microeconomics?
There exists a literal market; a specific place where certain types of commodities are bought
and sold. In economics, however, a market appears whenever (wherever) 2 (or more)
individuals want to do an exchange transaction. In microeconomics, the process of resource
allocation is studied, which is determined by market progress, so markets fill up a big part in
microeconomics.
3. Summarise the two main types of agents in microeconomics.
1st type = a consumer can own certain stocks of commodities and needs to decide how big an
amount of each commodity he wants to consume. The consumption (equals purchasing)
decisions are analyzed. A consumer buys and sells commodities to consume.
2nd type = a firm, which is usually seen as an individual decision-taker who undertakes the
process of producing commodities. The inputs therefore are mostly other commodities. A
firm buys inputs and produces commodities to sell.
4. What kind of economic system is microeconomics concerned with, according to Gravelle and
Rees? What concept from week 2 corresponds to this?
A decentralized private ownership economy; it is informationally and decisionally
decentralized; each economic agent knows (only) the for him relevant information and can
make his own decisions. This corresponds with the idea, and specifically the freedom of,
capitalism.
5. What is deductive reasoning? How is it related to the use of mathematics in
(micro)economics?
It is a type of ‘thinking’ in which you use general ideas (prior established principles) to form a
conclusion, it uses an ‘if-then’ approach, just as mathematics does, which makes it perfect to
secure deductive reasoning in (micro)economics. Mathematics uses logical reasoning and
calculations to reach conclusions.
6. In what sense is economics a mathematical science? Use Chiang (1974) and the lecture to
motivate your answer.
7. What are the (four) advantaged of the use of mathematics instead of words in economic
analysis, according to Chiang (1974)? What (other) advantages were highlighted during the
lecture?
Knowledge & Comprehension
Microeconomics is a sub-field of economics concerned with individual decision-makers (for example
households or firms), as they allocate resources using markets and prices. The nature of the kind of
reasoning used is mathematical and microeconomics uses deductive reasoning; involves forming
specific conclusions (truth statements) from prior established principles (from general to a specific
situation).
1. What do Gravelle and Rees call the basic elements and concepts of microeconomics?
Goods and services or commodities
Prices expressed in a numeraire of as an abstract unit
Markets
Economic agents either consumers or firms
Rationality
Method of analysis
2. Provide a definition of markets. Why might they be called the central problem of
microeconomics?
There exists a literal market; a specific place where certain types of commodities are bought
and sold. In economics, however, a market appears whenever (wherever) 2 (or more)
individuals want to do an exchange transaction. In microeconomics, the process of resource
allocation is studied, which is determined by market progress, so markets fill up a big part in
microeconomics.
3. Summarise the two main types of agents in microeconomics.
1st type = a consumer can own certain stocks of commodities and needs to decide how big an
amount of each commodity he wants to consume. The consumption (equals purchasing)
decisions are analyzed. A consumer buys and sells commodities to consume.
2nd type = a firm, which is usually seen as an individual decision-taker who undertakes the
process of producing commodities. The inputs therefore are mostly other commodities. A
firm buys inputs and produces commodities to sell.
4. What kind of economic system is microeconomics concerned with, according to Gravelle and
Rees? What concept from week 2 corresponds to this?
A decentralized private ownership economy; it is informationally and decisionally
decentralized; each economic agent knows (only) the for him relevant information and can
make his own decisions. This corresponds with the idea, and specifically the freedom of,
capitalism.
5. What is deductive reasoning? How is it related to the use of mathematics in
(micro)economics?
It is a type of ‘thinking’ in which you use general ideas (prior established principles) to form a
conclusion, it uses an ‘if-then’ approach, just as mathematics does, which makes it perfect to
secure deductive reasoning in (micro)economics. Mathematics uses logical reasoning and
calculations to reach conclusions.
6. In what sense is economics a mathematical science? Use Chiang (1974) and the lecture to
motivate your answer.
7. What are the (four) advantaged of the use of mathematics instead of words in economic
analysis, according to Chiang (1974)? What (other) advantages were highlighted during the
lecture?
