Chapter 2: The Quiet and Peaceful World of Microeconomics (QPWM)
THE CONCEPTUAL IDEAL OF THE QPWM This chapter is a trip into the heartlands of the QPWM – the Quiet and Peaceful World of Microeconomics. It will quickly become clear why we call it peaceful. Quiet is often associated with peace. Quiet is a word which might be given diﬀerent meanings with respect to the core of microeconomic theory. Quiet is the opposite of noise. Some economists like to use noise as a technical-sounding term borrowed from engineers. They might talk about the share price for stocks in emerging countries being noisy. That is, in the sense of the ratio of ‘signal to noise’ which would be quoted as showing the degree of perfection of an audio system or an information spreading system. Markets send signals, economists like to say, in the form of prices. A sudden rise in the price of oil sends a signal that oil is becoming scarce. If it rises too much too often, or falls too much too often, then the signals are becoming noisy as the amount of incorrect information is too large. Quiet and peace are also words that might be associated with the concept of equilibrium as used in economics. Equilibrium is a state of rest in which there is no force for change unless an exogenous (from outside the system) shock occurs. It is fair to say that economists seem to be almost obsessed with equilibrium. In recent decades as the focus has shifted away from general equilibrium theory and competition,...
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