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The Theorem of Exchange and Market Demand

Alfred Marshall

R.H.CoasePrinciples of
Economics1890utility
long runshort runequilibrium
disequilibrium

Prentice-Hall

Economic

Explanation

A.AlchianJ.HirshleiferK.BrunnerR.Baldwin
hypothesisThe Chicago School

R.Carnap

K.Brunner

scientific explanation
Theory of Knowledge

A.Alchian

empirical science

Adam SmithThe Wealth of Nations

random


phenomenon
fact
behaviorobservation

K.BrunnerM.Friedman
A.Marshall

refutable by facts

ad hoc theory

tautology

M.Friedman

A.Alchian

MV
P
9

Q MV=PQ MVPQ
MVPQ

I.Fisher

MP

Coase Theorem

R.Kessel

10

Empirical Science

confirmed

testable implication
A B AB

B A Not BNot A

ABNot BNot A
AB

ABNot BNot ANot A

Not B Fallacy of Denying the
Antecedent
A B A B A B
A
B
Not A

Not B

R.A.Lester

11

AB Not ANot B

12

A.C.Pigou

D.Ricardo

F.H.Knight
riskuncertainty

utilityJ.Bentham

13

meaningless

inconsistent

C.Issawi

W.Baumol

J.Hicks

P.A.Samuelson

14

test conditions

variables

15

disequilibrium
equilibrium

R.H.Coase

16

reality
realism

test conditions

constraints

17

18

Theory of Knowledge

19

postulate
axiom

testable or refutable implications

20

individual

21

22

convention

Price TheoryChoice
Theory

predictable choice

23

24


predictable choice

25


Neoclassical

MarginalismMaximization
Minimization

A.Smith
D.RicardoJ.S.Mill

C.Darwin1809-1882

26

 A.Alchian
UncertaintyEvolution and Economic Theory

R.DawkinsThe Selfish Gene

J.Hirshleifer

Postulate
of Constrained Maximization
constraints

27

28

scarcitycompetition

29


goods
productcommodity
service

economic goodsfree goods

30


scarcity

price
sacrifice

31

competition

32

33

34

35

system of property rights

private property
rights

propertyproperty
property

Property
Competition
Scarcity

36

37

38


Coase Theorem

price

39

40

multiple choice

value judgement

41

42

43

44

constraints

45

46

income distributionresource
allocation resource use

New Institutional Economics

ad hoc theory

47

tautology
value judgement

nonsense

F.Hayek
Theory of the State
J.BuchananG.Stigler
G.Becker
H.Demsetz

48


Utility
Utility
Cost
Utility
Utility Utility

Utility Utility

49


J.Bentham,1748-1832
Utility

Welfare economics
P.Samuelson,1915-

E.E.Slusky1880-1948

G.J.Stigler,1911-1991The Development of Utility Theory

50

"The criterion of congruence with reality should have been sharpened-sharpened into
the insistence that theories be examined for their implications for observable behavior.
Not only were such implications not sought and tested, but there was a tendency, when there
appeared to be a threat of an empirical test, to reformulate the theory to make the test
ineffective. Economists did not anxiously seek the challenge of the facts."

J.Buchanan
G.Tullock

R.H.Coase
M.FriedmanG.Becker
A.A.Alchian

51

Options

Utility

Options
ranking

Cardinal measure

Ordinal measure

Linear transformation

52

Additive utility

ComplementsSubstitutes

J.von Neumann1903-1957
O.Mogenstern1902-1977

53

Total utility

I.Fisher1867-1947

W.S.Jevons1835-1882

R.H.Strotz

54

Postulate

Postulate of substitution

Indifference Curve

55

Convexity postulate

Postulate of diminishing marginal rate of substitution

56


Inferior good

Inferior good

Giffen Paradox
A.Marshall
Sir Robert Giffen,1827-1910

Giffen Good

57

58


The Law of Demand

59

postulate

Utility

Non-pecuniary good
60


Pecuniary good

61


variable

other things unchanged

ceteris paribusparameter

M.FriedmanThe Marshallian
Demand Curve

real incomemoney
income

partial equilibrium
general equilibrium

62

63

money income

64

independent variable

dependent variable

ceteris paribus

Price Theory

65


taste

66

utility
A. Smith

use value
exchange value

paradox

67

relative price

present valuediscounted

flowstock
one instant of time

68

VVS1VVS2 cutting

AAAAAA

69

proxy

cedar round Cedar

70

71


consumer's surplus
J.Dupuit
A.C.Pigou,1877-1959

A.Director1902-

72

all-or-nothing

all-or-nothing
demand curve

inferior good

73

price
discrimination

74

price elasticity of demand

coefficient

elastic

inelastic

75

76


A.A.Alchian
G.J.StiglerThe second law of demand

77


not an exact science

78

quota

expectation

R.Kessel
79

ceteris paribus

regression analysis

testconditions
constraints

80


otherthings
testconditionsconstraints

implicationhypothesis

----

criticaltest

A.A.Alchian
R.H.Coase

----

--

81

----

82

----

83

84

85

quality

86

Sunkist

J.Umbeck
RedDelicious

J.Gould J.Segall

87

88

89

90

NewInstitutionalEconomics

91

marginalusevalue

exchangevalue

marketequilibrium

ParetoCondition

$1.00

$2.00

$0.90

$1.60

$0.80

$1.20

$0.70

$0.80

$0.60

$0.40

$0.50

$0.00

$0.50
$2.00$0.50$2.00
$0.80

92

65431234
$0.80

$0.60
$0.80-$0.50+$0.80-$0.60+$0.80-$0.70
$2.40$2.00-$0.80+$1.60-$0.80+$1.20-$0.80

$0.80

$0.80

V.Pareto1848-1923

transactioncosts

93


marketdemandindividualdemand

privategoodspublicgoods

exclusiveuse

94

Marshall

shortagescarcity

shortage

surplus

unstableequilibrium

explosive
dynamic

95

96

propertyrights

transactioncosts

resourceallocation
incomedistribution

CoaseTheorem

97


privategoodspublicgoods
PublicGoods

exclusiveuseconcurrentuse

publicgoods

J.S.Mill
H.Sidgwick,1883 E.R.Lindahl,1919 A.C.Pigou,1938
P.A.Samuelson,1953

98

publicutilities

99

Book Book

100