Note to anyone reading this syllabus on the URPE Web site: All of my courses have lecture notes, problems and tests, and if people want to use this material all you need to do is to ask me. Fred

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ADVANCED MICROECONOMIC ANALYSIS Professor F. S. Lee

(ECON 502) Office: Manheim 202D

SectionVOA Office Hours: By appt.

Winter 2003 Office tel. 816-235-2543

E-mail: leefs@umkc.edu

Lecture: Thursday, 7.00-9.45, Haag Hall, Room 312

Required Texts: A. Marshall, Principles of Economics

B. R. Binger and E. Hoffman, Microeconomics with Calculus

S. Keen, Debunking Economics

F. Lee, Price Theory: A Mathematical Approach (distributed in

class)

F. Lee and S. Keen, “Neoclassical Microeconomic Theory: Should

Heterodox Economists Show it Any Respect?” (sent to you

by e-mail)

Optional Texts: A. Deaton and J. Muellbauer, Economics and Consumer Behaviour

H. R. Varian, Microeconomic Analysis

E. Silberberg and W. Suen, The Structure of Economics

Assessment: In-class Exam I cover sections I, II, and III

In-class Exam II covers sections IV and V

Final Exam cover sections VI (May 8, 8.00 – 10.00)

Each in-class exam is worth 25% and the final exam is worth 50% of your final grade.

Problem Sets: Problem sets will be distributed.

Course Description: The course covers neoclassical microeconomic theory, including

consumer behavior and demand, production and costs, perfect and imperfect competition, and oligopoly. The material will be presented historically as well as critically. Thus the contributions of Marshall, Sraffa, Robinson, Chamberlin, Viner, Harrod, Kaldor, and Hicks will be presented in conjunction with the presentation of the modern microeconomic theory. In addition, the theoretical problems with demand and supply curves, equilibrium, and marginalist pricing will be pointed out and their implications discussed.

COURSE OUTLINE AND READING LIST

“Well, in our country, “ said Alice, still panting a little, “you’d generally get somewhere else—if you ran very fast for a long time….” “A slow sort of country!” said the Queen. “Now here, you see, it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

Through the Looking-Glass

I. Historical Background to Modern Neoclassical Microeconomics

A. Brief Survey of Classical Political Economy

1. Bharadwaj, K. 1989. Themes in Value and Distribution: Classical

Theory Reappraised. London: Unwin Hyman, chs. 3, 4, and 5.

2. Bharadwaj, K. 1986. Classical Political Economy and Rise to Dominance

of Supply and Demand Theories. Calcutta: Longman Orient.

3. Garegnani, P. 1984. “Value and Distribution in the Classical Economists

and Marx.” Oxford Economic Papers 36: 291 – 325.

4. Walsh, V. and Gram, H. 1980. Classical and Neoclassical Theories of

General Equilibrium: Historical Origins and Mathematical Structure. New York: Oxford University Press, chs. 1-4.

B. The Rise to Dominance of Neoclassical Economics

1. Bharadwaj, K. 1989. Themes in Value and Distribution: Classical

Theory Reappraised. London: Unwin Hyman, ch. 6.

2. Bharadwaj, K. 1986. Classical Political Economy and Rise to Dominance

of Supply and Demand Theories. Calcutta: Longman Orient.

II. Neoclassical Methodology and Models

A. Marshall on Methodology

1. Marshall, Principles of Economics, Books I and II.

B. Modern Methodology and Models

1. Binger and Hoffman, Microeconomics with Calculus, chs. 1 – 4.

2. Silberberg and Suen, The Structure of Economics, chs. 1 – 6.

3. Gibbard, A. and Varian, H. R. 1978. “Economic Models.” The Journal

of Philosophy 75.11 (November): 664 – 677.

4. Robbins, An Essay on the Nature and Significance of Economic Science.

C. Criticisms

1. Keen, Debunking Economics, chs. 6, 7, and 12.

2. Clower, R. W. 1994. “Economics as an Inductive Science.” Southern

Economic Journal 60.4 (April): 805 – 814.

3. Lawson, T. 1997. Economics and Reality. London: Routledge, part II.

III. Theory of Consumer Behavior and Demand

A. Marshallian Analysis of Demand

1. Marshall, Principles of Economics, Book III.

*2. Parsons, T. 1931. “Wants and Activities in Marshall.” Quarterly Journal

of Economics 46 (November): 101 – 140.

*3. Shove, G. F. 1942. “The Place of Marshall’s Principles in the

Development of Economic Theory.” The Economic Journal 52 (December): 294 – 329.

4. Walker, D. A. 1982. “A Defense of Marshall on Substitutes and

Complements in Consumption.” Eastern Economic Journal 8: 67 – 78.

B. Modern Utility and Preference Theory

1. Binger and Hoffman, Microeconomics with Calculus, ch. 5.

2. Silberberg and Suen, The Structure of Economics, pp. 252 - 272.

3. Varian, Microeconomic Analysis, pp. 94 – 115.

4. Deaton and Muellbauer, Economics and Consumer Behaviour, pp. 1 – 47.

5. Hicks, J. R. 1946. Value and Capital. Oxford: Clarendon Press, pp. 11 –

25.

6. Phlips, L. 1974. Applied Consumption Analysis. New York: American

Elsevier Publishing Co., Inc., ch. 1.

7. Wong, S. 1978. The Foundations of Paul Samuelson’s Revealed

Preference Theory: A Study by the Method of Rational Reconstruction. London: Routledge & Kegan Paul, Ltd., ch. 3.

C. Consumer Demand Theory

1. Binger and Hoffman, Microeconomics with Calculus, chs. 6 - 8.

2. Silberberg and Suen, The Structure of Economics, pp. 272 – 297.

3. Varian, Microeconomic Analysis, pp. 116 – 143.

4. Houthakker, H. S. 1957. “An International Comparison of Household

Expenditures Patterns, Commemorating the Centenary of Engel’s Law.” Econometrica 25 (October): 532 – 551.

5. Hicks, J. R. 1946. Value and Capital. Oxford: Clarendon Press, pp. 26 –

41.

6. Phlips, L. 1974. Applied Consumption Analysis. New York: American

Elsevier Publishing Co., Inc., ch. 2.

7. Davies, J. E. “Giffen Goods, the Survival Imperative, and the Irish Potato

Culture”.

D. Special Topics in Consumer Demand Theory

1. Silberberg and Suen, The Structure of Economics, pp. 297 - 299, 304 –

306, 314 – 332.

2. Varian, Microeconomic Analysis, pp. 144 – 159.

3. Deaton and Muellbauer, Economics and Consumer Behaviour, pp. 37 –

42, 47 – 53, and 119 - 147.

4. Phlips, L. 1974. Applied Consumption Analysis. New York: American

Elsevier Publishing Co., Inc., ch. 3.

5. Hicks, J. R. 1946. Value and Capital. Oxford: Clarendon Press, pp. 42 –

52.

6. Samuelson, P. A. 1948. “Consumption Theory in Terms of Revealed

Preference.” Economica 15 (November): 243 – 253.

E. Market Demand Curve

1. Deaton and Muellbauer, Economics and Consumer Behaviour, ch. 6.

2. Varian, Microeconomic Analysis, ch. 9.4.

F. Criticisms

1. Lee and Keen, “Neoclassical Microeconomic Theory.”

2. Keen, Debunking Economics, ch. 2.

3. Steedman, I. 1989. “Economic Theory and Intrinsically Non-

Autonomous Preferences and Belief.” In From Exploitation to Altruism, pp. 205 – 221. Boulder: Westview Press.

4. Baker, D. 1988. “The Logic of Choice Theory”.

5. Baker, D. 1988. “The Logic of Neo-classical Consumption Theory.” Ph.

D. dissertation. University of Michigan.

6. Rizvi, S. 1998. “Responses to Arbitrariness in Contemporary

Economics.” In New Economics and Its History, pp. 272 – 288. Edited by J. B. Davis. Durham: Duke University Press.

7. Rizvi, S. 2001. “Preference Formation and the Axioms of Choice.”

Review of Political Economy 13.2 (April): 141 – 159.

8. Sippel, R. 1997. “An Experiment on the Pure Theory of Consumer’s

Behaviour.” The Economic Journal 107 (September): 1431 – 1444.

IV. Theory of Production and Costs

A. Marshall’s Analysis of Supply

1. Marshall, Principles of Economics, Book IV.

2. Bullock, C. J. 1902. “The Variation of Productive Forces.” The

Quarterly Journal of Economics 16 (August): 473 – 513.

3. Wicksteed, P. H. 1914. “The Scope and Method of Political Economy in

the light of the `marginal’ theory of value and of distribution.” The Economic Journal 24 (March): 1 – 23.

B. Theory of Production

1. Binger and Hoffman, Microeconomics with Calculus, ch. 10.

2. Varian, Microeconomic Analysis, pp. 1 – 24.

3. Ferguson, C. E. 1969. The Neoclassical Theory of Production and

Distribution. Cambridge: Cambridge University Press, chs. 1 and 4.

4. Cassels, J. M. 1936. “On the Law of Variable Proportions. In

Explorations in Economics: Notes and Essays Contributed in Honor of F. W. Taussig. New York: McGraw-Hill Book Co., Inc., pp. 223 – 236.

5. Maxwell, W. D. 1965. “Short-Run Returns to Scale and the Production

of Services.” Southern Economic Journal (July): 1 – 14.

C. Theory of Costs: Changes in the Level of Output

1. Binger and Hoffman, Microeconomics with Calculus, ch. 11.

2. Varian, Microeconomic Analysis, pp. 49 – 81.

3. Ferguson, C. E. 1969. The Neoclassical Theory of Production and

Distribution. Cambridge: Cambridge University Press, chs. 6 and 7.

4. Silberberg and Suen, The Structure of Economics, pp. 175 - 224.

5. Viner, J. 1952. “Cost Curves and Supply Curves. In A.E.A. Readings in

Price Theory, pp. 198 – 232. Edited by G. J. Stigler and K. E. Boulding. Chicago: Richard D. Irwin, Inc.

6. Maxwell, W. D. 1969. “Production Theory and Cost Curves.” Applied

Economics 1: 211 – 224.

7. Larson, B. 1991. “A Dilemma in the Theory of Short-Run Production

and Cost.” Southern Economic Journal 58.2 (October): 465 – 474.

D. Special Topics in Production and Cost Theory

1. Ferguson, C. E. 1969. The Neoclassical Theory of Production and Distribution. Cambridge: Cambridge University Press, chs. 2, 3, 5, 8, and 9.

2. Silberberg, The Structure of Economics, pp. 225 - 251.

3. Varian, Microeconomic Analysis, pp. 82 – 93.

E. Criticisms

1. Lee and Keen, “Neoclassical Microeconomic Theory.”

2. Keen, Debunking Economics, ch. 3.

3. Aslanbeigui, N. and Naples, M. I. 1996. “Scissors or Horizon:

Neoclassical Debates about Returns to Scale, Costs, and Long-Run Supply, 1926 – 1942.” Southern Economic Journal 64.2: 517 – 530.

4. Yordon, W. J. 1970. “The Short-Run Cost Function in Manufacturing.”

Quarterly Review of Economics and Statistics 10: 55 – 67.

5. Steedman, I. 1988. “Sraffian Interdependence and Partial Equilibrium

Analysis.” Cambridge Journal of Economics 12.1 (March): 85 – 95.

6. Yordon, W. J. 1992. “Stigler’s Adaptable and Indivisible Plant and the

Micro/Macro Schism.” History of Political Economy24.2 (Summer): 455 – 470.

V. Price Theory: Perfect Competition

A. Marshall’s Theory of Prices

1. Marshall, Principles of Economics, Book V and Appendix H.

2. Loasby, B. J. 1978. “Whatever Happened to Marshall’s Theory of Value.” Scottish Journal of Political Economy 25: 1 – 12.

3. Prendergast, R. 1992. “Increasing Returns and Competitive Equilibrium—the content and development of Marshall’s theory.” Cambridge Journal of Economics 16 (December): 447 – 462.

4. Hart, N. 1996. “Marshall’s Theory of Value: the role of external economies.” Cambridge Journal of Economics 20 (May): 353 – 370.

B. The Years of Turmoil, 1920 – 1933

1. Sraffa, P. 1925. “On the Relation Between Cost and Quantity Produced.” http://iml.umkc.edu/econ/economics/faculty/Lee/Sraffa/pdf

2. Roncaglia, A. 1991. “Sraffa’s 1925 Article and Marshall’s Theory.”

Quaderni di Storia dell’Economia Politica 9.1-2: 373 – 397.

3. Panico, C. 1991. “Some Notes on Marshallian Supply Functions.” The

Economic Journal 101 (May): 557 – 569.

4. Maneschi, A. 1986. “A Comparative Evaluation of Sraffa’s `The Laws of

Returns under Competitive Conditions,’ and its Italian Precursor.” Cambridge Journal of Economics 10 (March): 1 – 12.

5. Pigou, A. C. 1928. “Analysis of Supply.” The Economic Journal 38

(June): 188 - 197.

6. Robbins, L. 1928. “The Representative Firm.” The Economic Journal

38 (September): 387 – 404.

7. “Increasing Returns and the Representative Firm: A Symposium.” The

Economic Journal 40 (March): 79 – 116.

8. Harrod, R. 1972. Economic Essays. Second Edition. London: The

Macmillan Press Ltd., chs. 3 – 5.

9. Mongiovi, G. 1996. “Sraffa’s Critique of Marshall: a reassessment.”

Cambridge Journal of Economics 20 (March): 207 – 224.

10. Marcuzzo, M. C. 1994. “R. F. Kahn and Imperfect Competition.”

Cambridge Journal of Economics 18 (February): 25 – 40.

11. O’Shaughnessy, T. J. 1994. “Kahn on the Economics of the Short

Period.” Cambridge Journal of Economics 18 (February): 41 – 54.

12. Aslanbeigui, N. and Naples, M. I. 1996. “Scissors or Horizon:

Neoclassical Debates about Returns to Scale, Costs, and Long-Run Supply, 1926 – 1942.” Southern Economic Journal 64.2: 517 – 530.

C. Perfect Competition and the Supply Curve

1. Binger and Hoffman, Microeconomics with Calculus, chs. 12 – 13.

2. Varian, Microeconomic Analysis, pp. 25 – 48, 215 – 235.

3. Kaldor, N. 1934. “The Equilibrium of the Firm.” The Economic Journal

44 (March): 60 – 76.

4. Jaffee, W. 1967. “Walras’ Theory of Tatonnement: A Critique of Recent

Interpretations.” The Journal of Political Economy 75: 1 – 19.

5. Walker, D. A. 1973. “Edgeworth’s Theory of Recontracts.” The

Economic Journal 83: 138 – 149.

6. Robinson, J. 1966. Collected Economic Papers Vol. 1. Oxford: Basil

Blackwell, pp. 20 – 34.

D. Criticisms

1. Lee and Keen, “Neoclassical Microeconomic Theory.”

2. Keen, Debunking Economics, ch. 3.

3. Aslanbeigui, N. and Naples, M. I. 1996. “Scissors or Horizon:

Neoclassical Debates about Returns to Scale, Costs, and Long-Run Supply, 1926 – 1942.” Southern Economic Journal 64.2: 517 – 530.

4. Sraffa, P. 1925. “On the Relation Between Cost and Quantity Produced.” http://iml.umkc.edu/econ/economics/faculty/Lee/Sraffa/pdf

5. Panico, C. 1991. “Some Notes on Marshallian Supply Functions.” The

Economic Journal 101 (May): 557 – 569.

VI. Price Theory: Imperfect Competition and the Firm

A. Monopoly

1. Binger and Hoffman, Microeconomics with Calculus, ch. 15.

2. Varian, Microeconomic Analysis, pp. 236 – 259.

3. Hicks, J. R. 1935. “Annual Survey of Economic Theory: The Theory of

Monopoly.” Econometrica 3 (January): 1 – 20.

B. Monopolistic/Imperfect Competition

1. Binger and Hoffman, Microeconomics with Calculus, ch. 16.

2. Chamberlin, The Theory of Monopolistic Competition, chs. 4, 5, 6, 7, and

9.

3. Robinson, J. 1938. The Economics of Imperfect Competition. London:

Macmillan and Co., Ltd., chs. 1 – 14.

4. Harrod, R. 1972. Economic Essays. Second Edition. London: The

Macmillan Press Ltd., chs. 7 - 8.

5. Kaldor, N. 1960. Essays on Value and Distribution. Glencoe: The Free

Press, chs. 3 – 5.

6. Pigou, A. C. 1933. “A Note on Imperfect Competition.” The Economic

Journal 43 (March): 108 – 112.

7. Robinson, J. 1966. Collected Economic Papers Vol. 1. Oxford: Basil

Blackwell, pp. 35 - 43.

8. Sherrard, A. 1951. “Advertising, Product Variation, and the Limits of

Economics.” Journal of Political Economy 59 (April): 126 – 142.

C. Oligopoly

1. Binger and Hoffman, Microeconomics with Calculus, ch. 16.

2. Varian, Microeconomic Analysis, pp. 285 – 313.

3. Chamberlin, The Theory of Monopolistic Competition, ch. 3.

4. Hall, R. L. and Hitch, C. J. 1939. “Price Theory and Business Behavior.”

Oxford Economic Papers 2 (May): 12 – 45.

5. Lerner, A. P. 1934. “The Concept of Monopoly and the Measurement of

Monopoly Power.” The Review of Economic Studies 1 (June): 157 – 175.

6. Stigler, G. J. 1968. The Organization of Industry. Homewood: Richard

D. Irwin, Inc., chs. 5, 9, and 18.

7. Ono, Y. 1982. “Price Leadership: A theoretical analysis.” Economica

49: 11 – 20.

8. Hotelling, H. 1929. “Stability in Competition.” The Economic Journal

39 (March): 41 – 57.

9. Koutsoyiannis, A. 1979. Modern Microeconomics.Second edition.

London: Macmillan, chs. 9 – 14.

10. Reid, G. 1981. The Kinked Demand Curve Analysis of Oligopoly.

Edinburg: Edinburgh University Press.

D. Behavioral and Managerial Theories of the Firm

1. Koutsoyiannis, A. 1979. Modern Microeconomics. Second edition.

London: Macmillian, chs. 15 - 18.

2. Scitovsky, T. 1943. “A Note on Profit Maximization and its

Implications.” The Review of Economic Studies 11 (Winter): 57 – 60.

3. Machlup, F. 1967. “Theories of the Firm: Marginalist, Behavioral,

Managerial.” The American Economic Review 57 (March): 1 – 33.

4. Baumol, W. J. 1958. “On the Theory of Oligopoly.” Economica 25

(August): 187 – 198.

5. Baumol, W. J. 1962. “On the Theory of the Expansion of the Firm.” The

American Economic Review 52 (December): 1078 – 1087.

6. Marris, R. L. 1963. “A Model of the Managerial Enterprise.” Quarterly

Journal of Economics 77 (May): 185 – 209.

7. Williamson, J. 1966. “Profit, Growth and Sales Maximization.”

Economica 33 (February): 1 – 16.

8. Cyert, R. M. and March, J. G. 1963. A Behavioral Theory of the Firm.

Englewood Cliffs: Prentice-Hall, Inc., chs. 1 – 9.

E. Problems with Marginalism

1. Lee and Keen, “Neoclassical Microeconomic Theory.”

2. Keen, Debunking Economics, ch.4.

3. Lee, F. S. 1984. “The Marginalist Controversy and the Demise of Full

Cost Pricing.” Journal of Economic Issues 18 (December): 1107 – 1132.

4. Lee, F. S. and Irving-Lessmann, J. 1992. “The Fate of an Errant

Hypothesis: The Doctrine of Normal-Cost Prices.” History of Political Economy 24.2: 273 – 309.

5. Nordquist, G. L. 1965. “The Breakup of the Maximization Principle.”

Quarterly Review of Economics and Business 5: 33 – 46.

6. Bianchi, M. 1990. “The Unsatisfactoriness of Satisficing: From Bounded

Rationality to Innovative Rationality.” Review of Political Economy 2 (July): 149 – 167.

Many of the articles can be found on JSTOR that can be found at:

http://www.jstor.org/cgi-bin/jstor/listjournal

JSTOR includes the following economic journals:

American Economic Review

Econometrica

Economic Journal

Journal of Economic History

Journal of Economic Literature

Journal of Industrial Economics

Journal of Political Economy

Quarterly Journal of Economics

Review of Economic Studies

Review of Economics and Statistics