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Evolution of Rational Modeling in Modern Microeconomic Theory

Explore the transition from Marshallian Economics to the Neoclassical Approach emphasizing empirical fit over assumptions, focusing on efficient resource allocation and general equilibrium concepts, with a formalist science-based perspective.

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Evolution of Rational Modeling in Modern Microeconomic Theory

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  1. Chapter 14: The Development of Modern Microeconomic Theory Questions for Review, Discussion, and Research 1, 2, 3, 4, 5, 6

  2. Distinguishing Features • Not the elements or topics but the modeling approach • The assumptions and conclusions are less important than the empirical “fit” of a model to databases skip pp. 391-403

  3. Decline of Marshallian Economics • Partial equilibrium analysis was a workable theory that sought to answer ‘real world’ questions • Walked a fine line between • Historical and institutional approach • Formalists who believed that economics should be a science

  4. The latter reach apex at prestige in 1959 with the general equilibrium model of Arrow and Debreu

  5. Attributes of Neoclassical Approach • Focuses on the efficient allocation of economic resources (inputs) and outputs in product markets • Accepts some variation of utilitarianism • Focuses on marginal tradeoffs

  6. 4. Assumes far sighted rationality 5. Accepts methodological individualism 6. Structured around general equilibrium concepts

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