The Walrasian Vision of the Microeconomy

An Elementary Exposition of the Structure of Modern General Equilibrium Theory

Donald W. Katzner

Articulates the traditional vision of the microeconomy using a general equilibrium model

Description

The Walrasian Vision of the Microeconomy articulates the traditional vision that is conjured up in the minds of most contemporary economists as they contemplate the microeconomy. It does so by setting out a very simple general-equilibrium model containing 1 produced consumer good, 1 produced capital good, 2 factors, 2 consumers, and 2 firms. Most of the basic theoretical ingredients of perfect competition taught in microeconomic theory courses are geometrically developed in this context: market equilibrium, the derivation of consumer demand for goods and supply of factors from constrained utility maximization, the relation between cost and production functions, the derivation of firm output supply and input demand from profit maximization, and the connections between competitive equilibrium, Pareto optimality, and welfare maximization. Also included is an elementary geometric proof of the existence and uniqueness of competitive equilibrium. The underlying premise is that these elements are all components of a larger picture and, as a result, fit together into a unified whole. The book is ideally suited to accompany the fuller and more detailed expositions of standard microeconomic theory texts.

Look Inside

Contents

1. Introduction     1
1.1 A Description of the Economy     1
1.2 The Approach     5

2. Markets     11
2.1 Demand and Supply     11
2.2 The Operation of Markets     17

3. Individual Consumer Behavior     25
3.1 Utility Functions     26
3.2 Utility Maximization     33
3.3 Consumer Demand and Supply Functions     40

4. Production and Cost     47
4.1 Production Functions     48
4.2 Cost Minimization: The Long Run     54
4.3 Long-Run Cost Functions     58
4.4 Cost in the Short Run     61
4.5 A Comparison of Long-Run and Short-Run Cost Curves     63

5. Individual Firm Behavior     69
5.1 Revenue and Profit     70
5.2 Profit Maximization     72
5.3 Short-Run Demand and Supply Functions     76
5.4 Long-Run Demand and Supply Functions     80

6. A Walrasian Model     85
6.1 The Equations      86
6.2 Explaining Economic Reality     90
6.3 Pareto Optimality     94
6.4 Welfare Maximization     99
6.5 Existence and Uniqueness of Equilibria     103
Appendix 6.A     109
Appendix 6.B     110

7. The Walrasian Vision 111

Index 117