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Neoclassical HET (Themes (origins (decline of the classical theory of…
Neoclassical HET
Themes
marginalism
marginal cost
marginal utility
utility
subjective theory of value (until Pareto)
term "economics"
social classes -> individual agents
capital accumulation -> constant general equilibrium
equilibrium between supply and demand
price determination: costs of production -> “tastes and technology”
consumer preferences and technical means of production
scarce available resources
Robbins
method: historical-deductive -> hypothetical-deductive
from historical conditions to mathematical, a-historical economic laws
origins
decline of the classical theory of value
wages at subsistence levels
embodied theory of labour
Zeitgeist
utilitarianism
mathematical analysis
consumers are more separated from production
Second generation
Marshall (op 1890)
microeconomics
demand and supply have the same weight
partial equilibrium
Marshallian cross
consumer and producer surpluses
they are maximised at equilibrium
demand elasticity
short- and long-term supply
short: quantity variation
long: price change
perfect competition
drive prices down
economies of scale
increased output -> decreasing avg cost of production
Pigou (op 1920)
private vs. social benefits (& costs)
externalities
Pegouvian tax
hidden public costs
Pegouvian subsidies
beneficial private action
Pareto (1910s)
optimality
goods distribution maximises general utility
change = someone is worse off
utility shows preference rankings
utility maximisation -> efficient allocation
no subjective theory
general equilibrium (Walras)
II theorem welfare econ
different distribution of initial endowment
taxation -> equality
market generates new equilibrium
I theorem welfare econ
efficient allocation of resources as the endpoint of a perfectly competitive general equilibrium
efficient allocations are possibile at different income distributions
theory of capital
Böhm-Bawerk
interest rate
factors
present goods are more valuable than future ones
expectation of rising future wealth
better future methods of production
compensation for spending restraint
Wicksell
natural vs. market interest rate
natural: long-run equilibrium
investment = saving
marginal productivity of capital
saved-up labour and land / current labour and land
Fisher
interest rate = incentive to save
impatience
Imperfect competition
1930s and 1970s
focus on alternative forms of competition
critiques lassez-fair
growth theory (Solow)
1950s
income growth
depends from population growth and exogenous tech advancements
growth is constant under accumulation of capital
independent from capital accumulation
for developing countries (failed)
Edgeworth (1925)
exchange equilibrium
point at which exchange is mutually beneficial & maximised
multiple stakeholders
perfect satisfaction is more difficult
perfect competition
one meeting point
price-taking
individual exchange
satisfied at multiple points
contract curve
no price-taking
controversies
Cambridge (1950-70)
behavioural economics
Methodenstreit
Forerunners
Von Thünen (1850)
location theory
transportation costs
the cost structure of production shapes the spatial division of labour
prodromes of marginal analysis
applied to labour employment
Cournot (1877)
mathematical analysis
derivatives express marginal concepts (applied to revenues)
Utilitarianism
Bentham (1832)
utility as a moral standard
quantification of economic behaviour
Gossen (1858)
subjective theory of value
I law
law of diminishing returns
II law
the ratio of marginal utility to price is equal across all commodities
same utility can be obtained from different goods = maximal utility
"bundle theory"
Mill
promotion of lassez-fair
Dupuit (1866)
theory of consumer demand
product’s price <-> quantity demanded
a demand curve is a marginal utility curve
the more something is bought, the less valuable it becomes
First generation (1870s)
Jevons (1882)
Utilitarian calculus
utility as the measure of an object’s ability to satisfy our preferences
differential calculus for all economic phenomena
marginal utility solves the paradox of value
price theory
ratio of exchange depends on the utility of two goods
perfect knowledge and indivisible commodities (assumptions)
rejects the labour theory of value
problem of antiques
it depends on labour insofar as it creates supply (marginal utility)
Walras
general equilibrium
price formation
consumption and production prices are unknown
tatonnement
(trial and error)
auction system
assumptions
all markets are perfectly competitive
transactions are carried out only at equilibrium
small changes in one market reverberate across all others
cuts across all markets
Walras' Law
has to do with unknown markets and excessive demand
Menger
the role of information
real markets conditions ≠ equilibrium
methodological debate