Egwald Economics: Microeconomics and Macroeconomics

by

Elmer G. Wiens

Microeconomics Theory, Testing, and Applications

In his introduction to Value and Capital, John Hicks compared writers of texts on the Principles of Economics to classical poets, urging them on with the quote, "What oft was thought but ne'er so well expressed." My aim on these web pages is to develop key models of economics that lend themselves to interactive investigation by internet users. Wherever possible, I permit the user/reader to perform comparative statics exercises with the models, to investigate how the models' results vary when their parameters are adjusted.

The models of section A. are microeconomics models that I found useful while working as a government economist. The models of section B. are based on the macroeconomics aggregates of the Canadian economy.

A. Microeconomics:

Economists attack and/or defend large corporations. Adam Smith believed a monopoly (oligopoly) firm charges higher prices for products than would obtain if the products were produced by a large number of smaller competitive firms. Textbooks on microeconomics teach that there is a range of competition among firms, from perfectly competitive to monopolistically competitive to differentiated oligopoly to pure oligopoly to monopoly.

Economists differ sharply as to the effects of monopoly power. Differences in opinion are even sharper about the role of government (public firms) enterprises in modern economies. Despite the worldwide collapse of communism and concomitant privatization, government enterprises continue to play a role in many economies.

   1. Oligopoly / Government Firm / Mixed Oligopoly Model.

My programs let you model an industry that is:
    1. a monopoly (private or public),
    2. an oligopoly,
    3. an oligopoly with one firm a government (public) firm,
    4. and, specify the managerial incentives for the government (public) enterprise.

(These managerial incentives can also be used in "private firms" with profit centers.)

   2. Differentiated Oligopoly.

Each seller in an imperfectly competitive market faces a negatively sloped demand curve for its product, permitting it some control of the price of its product. In a differentiated oligopoly, a few firms produce products different enough for each firm to have its own downward sloping demand curve.

   3. Monopolistic Competition.

The many firms in a monopolistically competitive industry produce differentiated yet similar products. New firms can easily enter the industry. A monopolistically competitive firm's own demand curve is highly elastic, permitting it to vary its price within a narrow range of prices. The other firms' products are either very close substitutes or, a large number of other firms' products are substitutes (not necessarily very close substitutes).

   4. Production Functions.

These web pages explain the most important production functions used in economics: the Cobb-Douglas production function, the CES production function, the Translog production function, and the Generalized Leontief (Diewert) production function. You can also estimate the parameters of the Translog and the Generalized Leontief (Diewert) production functions online.

B. Macroeconomics:

   1. Macroeconomics home page.

Macroeconomics attempts to understand the behaviour of the whole economy by analyzing the determination and interaction of such broad economic aggregates as national income and product, consumers' expenditures and savings, producers' output of products and producers' investment in capital, government revenues (taxes) and expenditures, exports and imports, the level and composition (by age, sex, and region) of employment, and the quantity of money in circulation. Much of modern macroeconomics theory and its application in government policy is still based on the work of John Maynard Keynes.

   2. Basic IS-LM model.

In the basic IS-LM model, the behaviour of the economic agents - consumers, producers (firms), and the government - is reconciled by the product and money markets. Focusing on the "demand side" of the economy, the IS-LM model is an important starting point in building a more complete macroeconomics model of the economy.

   3. Basic IS-LM model with exports and imports.

This web page extends the basic IS-LM model to include exports and imports. By adding the external sector, I model the open economy version of the Canadian economy.

   4. Comparative Statics of the IS-LM model.

This web page permits you to adjust the IS-LM model's parameters to see how the equilibrium macroeconomic variables and aggregates of the model change.

   5. Aggregate Demand (AD) - Aggregate Supply (AS) model.

By including the labour market and the economy's aggregate production function in the model, I derive the aggregate supply of products (commodities produced by firms) as a function of the price level of products. I also derive the aggregate demand for products as a function of the price level by including the effect of the price level on the money market. The equilibrium between aggregate demand and aggregate supply in the model determines the price level, the level of employment, the money wage rate, the amount of output, and the values of the other macroeconomic aggregates determined in the IS-LM model of the economy.

   6. Comparative Statics of the AD-AS Model.

This web page permits you to adjust the AD-AS (Aggregate Demand - Aggregate Supply) model's parameters to see how the equilibrium macroeconomic variables and aggregates of the model change.

C. Other Links:

The American Economics Association's sponsors the Resources for Economists on the Internet at the AEA Web page, with links to data sources, journals, software, consulting services, etc.

For the latest in statistics on the Canadian economy, go to the Statistics Canada homepage.

Works Cited and Consulted

• Hicks, J. R. Value and Capital. An Inquiry Into Some Fundamental Principles of Economic Theory. 2nd ed. Glasgow: Oxford UP, 1939.
• Keynes, John Maynard. The General Theory of Employment Interest and Money. London: MacMillan, 1936.
• Mansfield, Edwin. ed. Monopoly Power and Economic Performance: The Problem of Industrial Concentration. 4th ed. New York: Norton, 1978.