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Mathematics in Economics Analysis

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A. Which methodology is more appropriate for Economics, deduction or induction?

Surf the internet and research on David Ricardo and Thomas Malthus. They debated on which method is most suitable for Economics. Who with you side with? Why?

Malthus has become widely known for his theories about population and its increase or decrease in response to various factors. In Davis Ricardo's method he is also fair to the people. If the economy is improving the lives of the people will be good.

B. Why do we use Mathematics in Economics analysis?

Surf the internet and research on Alfred Marshall, one of the persons responsible for extensively using Mathematics in Economics? What did he say about this?

* The concept of consumer surplus is another of Marshall's contributions. He noted that the price is typically the same for each unit of a commodity that a consumer buys, but the value to the consumer of each additional unit declines. A consumer will buy units up to the point where the marginal value equals the price. Therefore, on all units previous to the last one, the consumer reaps a benefit by paying less than the value of the good to himself. The size of the benefit equals the difference between the consumer's value of all these units and the amount paid for the units. This difference is called the consumer surplus, for the surplus value or utility enjoyed by consumers. Marshall also introduced the concept of producer surplus, the amount the producer is actually paid minus the amount that he would willingly accept. Marshall used these concepts to measure the changes in well-being from government policies such as taxation. Although economists have refined the measures since Marshall's time, his basic approach to what is now called welfare economics still stands. To make economics dynamic rather than static, Marshall used the tools of classical mechanics, including the concept of optimization. With these tools he, like neoclassical economists who have followed in his footsteps, took as givens technology, market institutions, and people's preferences. But Marshall was not satisfied with his approach. He once wrote that "the Mecca of the economist lies in economic biology rather than in economic dynamics." In other words, Marshall was arguing that the economy is an evolutionary process in which technology, market institutions, and people's preferences evolve along with people's behaviour.



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