Term
| Who's concept of paradigm shift do we draw upon to understand the split between politics and economics? |
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Definition
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Term
| What are the four factors that distinguish a paradigm? |
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Definition
1. starting points and underlying assupmtions
2. their concepts or objects of analysis (trees)
3. Their big picture visions or outcomes (forest)
4. Theirr political or policy implications |
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Term
| When did political-economic theory emerge? Why did it emerge? |
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Definition
| in the 1600s and 1700s; in response to tremendous social, cultural, economic, political, and demographic changes taking place in the world at that time; often summarized as "the rise of capitalism." |
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Term
| What did the physiocrats believe? |
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Definition
| that economic wealth and value came from the land and through agriculture production-limited government intervention |
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Term
| Who opposed the physiocratic paradigm, and what did they believe? |
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Definition
| Mercantilist view: understood economic resources to originate not from the land but from trade-wanted more government intervention to protect trade |
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Term
| What did the "Wealth of Nations" refer to, as Adam Smith's work? |
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Definition
1. rejected physiocratic and mercantilist views of economy;
2. believed that trade was a source of wealth;
3. the invisible hand came into play;
4. market is self-regulating and does not require gov't intervention
5. labor and capital are also productive |
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Term
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Definition
1. he is rational and acts in his own self-interest
2. has a pre-constituted human nature
3. he always prefers more to less
4. he can affect social outcomes, but is not affected by social outcomes |
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Term
| The phrase "the economic man is rational" suggests: |
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Definition
people are insatiable
people make choices consistently
people make choices based on their self-interest |
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Term
| Can an individuals utility function be a part of another individuals function? |
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Definition
| Yes, thus altruistic behavior can and does occur, because utility functions are not independent |
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Term
How does the neoclassical theory view economic relationships?
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Definition
| It presumes a society in which people's economic relationships are structured as voluntary agreements based on the self interest of the contracting parties |
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Term
| Describe consumer surplus? |
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Definition
| Downward slope of the demand curve leads to consumer surplus; The difference between the value and the price is consumer surplus--the increase in the consumer's welfare that occurs b/c of this transaction. |
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Term
| Graph of consumer surplus: pink shaded area |
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Definition
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Term
| Describe producer surplus. |
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Definition
| When the producer can sellt he product for more than the marginal cost, the difference is a gain for the producer |
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Term
| Graph of producer surplus: blue shaded area |
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Definition
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Term
| Why is consumer surplus important to in neoclassical theory? |
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Definition
| b/c it is related to the efficiency of markets--markets increase welfare by making it possible for buyers and sellers to capture consumer and producer surplus and thus be better off had they not engaged in exchange |
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Term
| Why is producer surplus important in neoclassical theory? |
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Definition
| b/c it tells us when surplus is present, it is going to exert downward pressure on the prices, and conversely, when a shortage is present, it exerts upward pressure on the prices to achieve equilibrium, and market clearing--the point at which efficiency is achieved. |
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Term
| Explain the 4 behavioral and market assumptions in neoclassical theory. |
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Definition
1. individuals act rationally;
2. they come to market with initial endowments and ability to produce
3. they interact with each other in markets to create and distribute wealth
4. the results of these interactions are fair, efficient, and optimal |
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Term
| Why are the behavioral and market assumptions of the neoclassical theory useful? |
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Definition
| Through the use of concepts we can understand the world around us, and develop a model which in turn can assist in making policy and suggesting further action. |
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Term
| What are behavioral assumptions? |
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Definition
| refer to those assumptions regarding people; and in neoclassical theory the "economic man." |
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Term
| What are market assumptions? |
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Definition
| assumptions related to this system of voluntary exchange where economic man acts. For neoclassical economists, the market is the object of analysis and markets are where economic activity happens, and where wealth is produced and distributed. |
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