Final Flashcards
Abstinence Theory of Profit
Nassau William Senior
States that money used for lending purposes is the money not used for consumption. Basically, earning interest by abstaining from spending makes the funds possible and available for borrowers. Explains the interest return to capitalists.
American institutionalism
Thorstein Veblen (tugwell,Clark, Mitchell)
20s and 30s
Part of a broader process of cultural development
Useful for developing countries
Laid foundation for institutional economics
Critiqued traditional static economic theory.
Cardinal Utility
Utility is measurable by cardinal or qualitative numbers.
Not possible so less realistic
Neo classical economists (Alfred Marshall)
Assumptions 1) utility is quantifiable, the consumer is rational, utility is additive, and marginal utility of money remains the same.
Ceteris Paribus
All other things equal
Used for analyzing a particular aspect of the economy.
Impossible to theorize about effects of one factor without this.
Example
Petrus Olivi 1295
Conspicuous Consumption
Thorstein Veblen 1899
Expenditure or consumption of luxuries on lavish items in an attempt to enhance one’s prestige
Examples
Consumer surplus
Measurement of consumer benefits Price is less the what they’re willing to pay Developed 1844 to measure public goods (Based on theory of marginal utility) Disney example
Dialectic Materialism
Came to mean Marxist philosophy in 1930s
Asserts the primacy of matter over consciousness. Material conditions of existence over intellectual life.
Belief that events result from social conflict and are a series of contradictions and their solutions.(MATERIAL NEEDS) Marx- matter over reason
1: law of unity and conflict of opposites
2. Law of transition of quantity into quality
3. The law of negation
Equimarginal principle
Consumers will choose a combination of goods to maximize their total utility. MU of A/ price of A= MU of B/ price of B
Example 2 and 4
1.consumer income is fixed
2.prices are fixed
3. Preferences are fixed
4. Consumers can perform utility calculations
Gossen’s First Law
Law of diminishing marginal utility
Car example
German economist
Hegelian Dialectics
Georg Wilhelmina Hegel
German
Thesis+ antithesis= synthesis
Always in motion to find truth
Historical Materialism
Engels and Marx Tangible world influences intangible Opposite of idealism The history of all hitherto existing society is the history of class struggle Feudal underestimated merchants
Keynesian Cross
Liquidity Trap
Money market- but interest or hold on to cash by looking at interest. Money supply set by central bank. Interest rates fall so low that people want to hold onto cash (think it’ll rise soon)Liquidity trap removes monetary policy . 2008 banks didn loan out money because of low risk options. Keynes
Marginal Propensity to Consume
Additional income that is spent
School example
Spending multiplier= 1/mps
Multiplied by spending in nation
Money illusion
Keynes and Fischer 1928
Look at money in nominal dollars vs purchasing power
Don’t take inflation into account
Lack of financial education and price stickiness as triggers
Example
Multiplier Effect
The greater than proportional increase in national income resulting from an increase in aggregate demand. Decrease in interest rate, businesses borrow more, employing more, household have more income, spend more- based on MPC
Key tenant of Keynesian theory
Natura non facit saltum
Nature does not make jumps solutions of the governing equations are continuous and does not preclude their being differentiable
Alfred Marshall 1890 book Principle of Economics
New Deals Programs
Programs during the Great Depression by FDR 1930 to restore prosperity. At Ad Admin- farm prog raise process by curtailing production Civ Works Admin- temporary job relief CCC employed young men in rural areas. 3 rs.
Organic Composition of Capital
Karl Marx
Alternative to neo classical concepts of factors of production
Ratio of the value of the materials and fixed cost embodied in production of a commodity to the value of the labor power used in making it
Partial Equilibrium Analysis
Takes into consideration only effects of a given policy action in the market and the direct effect.
Examines effects of policy only for one good at a time
Alfred Marshall
Pecuniary Emulation
Thorstein Veblen
Theory of the leisure class
Exceed someone else’s socio economic status
Aquire wealth to gain status
Individuals buy cultural products conspicuously to imitate higher classes
Predatory instincts (Veblen)
Thorstein Veblen
Goal of making oneself better or of higher status to surpass a wealthy persons socio economic status
Producer Surplus
The producer selling at a higher price than what they would accept
Area above supple curve and below equilibrium
Example
Quasi rent
Alfred Marshall
Temporary economic rent like returns to a supplier or owner and used for a short period of time. Short run purpose used for one purpose. Short run equipment earnings and can provide surplus earnings for temporary period
Rate of Surplus Value
Reserve Army of Unemployed
Engel came up but Marx theorized
Unemployed and underemployed in capitalist society looking for work
Capitalism tactic to raise productivity
Returns to Scale
Sabotage Veblen
Businessman’s techniques for profit generation. Co scoops withdrawal of efficiency . Wealthy spent their money to prove claims to succes. Gov was controlled and manipulated by the “captains of industry” and private property rights were used to justify
Waste of resources
Tatonnement Process
Leon Walras
Trial and error process where equilibrium prices and stability are reached in competitive markets.
Prices go up in response to excess demand and down in response to excess supply
Timelessness of Equilibrium
Joan Robinson
Critic of equilibrium analysis
Against Walrasian economics necessarily misdirected analysis in macroeconomics, capital theory, distribution theory, and value theory
Transformation Problem
Marx
Occurs in marketplace
Problem of finding a general role by which to transform the values of commodities on their socially necessary labor content into the competitive prices o the market
Utopian socialists
First current of modern socialism and socialist thought as Charles Fourier and Robert Owen.
1800s
Based on belief that social ownership of the means of production can be achieved by voluntary and peaceful surrender of their holdings. Allow owners and workers to live and work communally
Walrasian Crier
Leon Walrus simultaneous auction where each agent calculates its demand for the good at every possible price and submits this to an auctioneer. The price is then set so that the total demand across all agents equals the total amount of good. Therefor matches supply and demand perfectly.
Nash Equilibrium
John Nash
Concept within game theory where the optimal outcome of the game is where there is no incentive to deviate from the initial strategy. Both players make the optimal move but now consider the moves of their opponent. Prisoners dilemma. 1994 awarded
