2023/02 | LEM Working Paper Series | ||||||||||||||||
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Why is economics the only discipline with so many curves going up and down? And are they of any use? |
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Giovanni Dosi |
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Keywords | |||||||||||||||||
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Demand and supply curves; aggregation; costs and prices; dynamical systems.
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JEL Classifications | |||||||||||||||||
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C60, D01, D20, D50
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Abstract | |||||||||||||||||
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Even the most rudimentary training from Economics 101 starts with demand curves going down and
supply curves going up. They are so 'natural' that they sound even more obvious than the Euclidian
postulates in mathematics. But are they? What do they actually mean?
Start with ''demand curves''. Are they hypothetical 'psychological constructs' on individual
preferences? Propositions on aggregation over them? Reduced forms of actual dynamic proposition
of time profiles of prices and demanded quantities? Similar considerations apply to ''supply curves''
The point here, drawing upon the chapter by Kirman and Dosi, in Dosi (2023), is that the forest of
demand and supply curves is basically there to populate the analysis with double axiomatic notions
of equilibria, both 'in the head' of individual agents, and in environments in which they operate.
And the issue is even thornier when dealing with ''curves'' going up and down in macroeconomic
contexts where one is basically talking of a mystical construction of a meta meta meta loci of
equilibrium - first, in the head of each agent, next, in each market (for goods, for savings, etc.),
finally in the overall economy.
Supply and demand ''curves'', I am arguing, are one of the three major methodological stumbling
blocks on the way of progress in economics - the others being 'utility functions' and 'production
functions' -.
There is an alternative: represent markets and industries how they actually works, and model them
both via fully fledged Agent Based Models and via lower dimensional dynamical systems.
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