Intricate Connection between Mathematics and Economics

Essay Questions #4
Name
Institution
1 What was Lucas' view on math in economics?
He believes that there is an intricate connection between mathematics and economics. They are correlational in such a way that understanding economic phenomena depends on mathematical analysis, while on the other hand, mathematical analysis is defined by economic principles. In other terms, it is only through mathematical analysis that economic theory can be understood.
2 In rationale expectations, how is the average person expected to behave? Is this realistic?
An average person is expected to cut back on spending and save money.
It's not realistic. Because if everybody tries to save more at the same time, it will result in a fall in the overall level of spending, firms will cut back on production and lay off workers, which will ultimately reduce income and savings.
3 According to rational expectations, anticipated government intervention will not impact the economy. Why? What does the empirical data say about this idea?
The reason why the anticipated government intervention will not have any impact on the economy is due to the decisions made by countless individuals and firms thus lack of a proper way of pinning down the expectations, for there is no way to say how much money firms will invest, consumers will spend, or governments will take in, considering each entity has its future spending and savings.
According to the empirical data, the American economy is made up of roughly 300 million people, 110 million households, and about 30 million companies and the government that accounts for about a fifth of the GDP, fifty state governments, and several municipalities.
4 Why are spillovers (negative ones) an example of market failure?
Market failure occurs when goods and services are not well distributed. Negative spillover is experienced if a service or a product's equilibrium does not reflect the true costs and benefits of that product or service hence market failure.
5 What is the Coase theorem? Why is it not that practical?
The theorem relies on costs of negotiation as transaction costs. He states that, in an ideal economic environment, when an activity inflicted harm on many different people, the involved parties can negotiate terms that accurately reflect the full costs and underlying values of the property rights at issue, thus coming out with the most efficient outcome.
It is not practical because it is difficult to get all the interested parties to an agreement, is also expensive, and can only be applied where negligible.
6 How does the research of Brian Arthur show that the market can fail?
Brian Arthur's research on market failure focuses on the high-technology sector where monopoly is endemic. He argues that chance events and network effects can enable inferior technologies to beat out superior products and take over the entire market. The essence of his paper focused on the utility that the goods provided to the people, which was to depend not only on their intrinsic merits but also on the number of people using them.
7 How important is technological progress for economic growth?
Technological progress is important for economic growth because it allows the production of more efficie...