Theme 3: Microeconomics & Mathematics articles & reading questions - Introduction To Economics And Business Economics (ECB1IEBE)

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