Base10 attended Micro Theory last night. He is a little behind, but is happy that the professor has started consumer theory--a subject he was always much better at that the theory of the firm.

Anyway, Base10 keeps saying this, but he must review his mathematics--especially differential equations and linear programming. The macro theory midterm should be two weeks from today, so Base10 needs to bone up on that, too.

Does economics rest on shaky foundations? In a way it does, and economists readily admit it. Economics assumes a rational actor model where both consumers and producers act in their rational self interest. This does not imply that people cannot be kind or altruistic, it merely reduces altruism to another variable that the consumer can maximize. But consumer theory doesn't take into account what others do. Behavioral economists look at whether the consumption of others, say your neighbors, effect your own consumption. The answer seems to be yes, and if that's the case, consumer theory falls apart.

The other caveat about consumer theory is that for all the mathematics and formulae, there is really only one result: income adjusted demand curves slope downward. In other word, people consume less of something when its price is high and more of something when its price is low. While the proof of this simple concept took generations, Base10 wonders if microeconomists mightn't just close up shop.

When Base10 discovers a new economic law, he'll let his readers know.

- posted by Base10 @ 8:50 AM