Wednesday, September 12, 2012

Getting on Terra Firma

You guys took me by surprise today when it seemed nobody in the class had seen the Edgeworth Box.  After the class was over it occurred to me that we didn't talk about quasi-linear utility, so we have to do that, and maybe my quick coverage of the Edgeworth Box was just too quick.

So let me say the following:
(a) For your general literacy as Econ students the Edgeworth Box is important as a tool.  If you want to learn more about it:
     (a1)  You can go here where there are a bunch of brief videos I've made on it.  There is coverage about markets in the Edgeworth box, which I only briefly touched on today.
     (a2)  Since some of you have trouble with Google Docs for downloading Excel Workbooks, I've posted the one on General Equilibrium here.  It has what I call Excelets --- there are controls you can press that move the graphs so you can better understand how the graph changes when that parameter changes.
(b)  For our course the Edgeworth box is not very important at all.  The concepts of Pareto Improvement  and Pareto Optimality, which can be applied in contexts other than the Edgeworth Box, are important.  As far as I know the are typically taught first by looking at the Edgeworth Box, but if you understand those concepts more broadly, that's fine.  Then you can ignore some of the minutia of the Edgeworth Box.
(c)  The one other reason for introducing the Edgeworth Box is that if the only alternative reference you have is the (partial equilibrium) supply and demand framework, then you know that the competitive equilibrium maximizes the social surplus, but it sure looks in that setting like efficiency considerations can be separated from equity considerations.  As a general proposition, it isn't true.  So we look at the restricted case of quasi-linear utility because it is true in that setting.  Law and Econ types like Coase maintain that assumption without blinking an eye.
(d)  I intended that first homework as a review to set the context for our course.  There is a puzzle if you take Econ 302 too literally.  Why not have only markets and all transactions taking place in them? Why have organizations as an alternative to markets?   Since it seemed less review than I had thought, I wonder if what we did with the PowerPoint afterward helped in setting context.  We didn't finish that and will have to return to it in the next class.

It also occurred to me that we shouldn't go so quick on covering stuff, particularly if it is newer to you than I had previously thought. So I am going to revise deadlines for things over the next few weeks to reflect that change of pace.  I will write another message in a bit about those new deadlines, once I've thought through what makes sense.

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