What are the three basic assumptions of Western economics?

The entire microeconomic argument is based on three basic assumptions, namely, perfect rationality, perfect competition, and complete information. All three of these assumptions are difficult to reconcile with the facts. First of all, it is impossible to be completely rational.

For the two major actors in microeconomics research: households and manufacturers, although they are consciously or unconsciously pursuing their own maximum utility and profits, in real economic life, their rationality is only limited. It is difficult for households to maximize utility in their daily consumption activities; It is also impossible for manufacturers to always arrange production activities to maximize profits.

Second, perfect competition is unrealistic. Western economics has strict limits on perfect competition, including the large number of buyers and sellers in the market; The goods offered by each manufacturer in the market are homogeneous; All resources are fully liquid; The information is complete. The conditions are so harsh that many Western economists also admit frankly

In real economic life, there is no market that truly meets these four conditions. Again, the complete information does not hold. The complete information assumption occupies an important place in microeconomics.

If the information is complete, then the market mechanism will be effective, and the resources can be optimally allocated. However, the information in real economic life is often incomplete and asymmetrical. In this case, information economists predict that the role of the ** mechanism will lead to the end of "bad money driving out good money", and the market will be inefficient.

It can be seen that the conclusions are completely different if the assumptions are different. However, the delicate theoretical edifice of Western economics is built on such fragile assumptions, and its scientific validity will naturally be seriously damaged.

The three major assumptions of economics lie in books, and a book reads real economics.

The basic assumptions of economics are: first, the assumption of a rational person. The assumption of a rational person (homo economicus).

Every economically active individual in the market (i.e. buyers and sellers) has complete information about the relevant economic situation.

Assumptions are the basic assumptions in microeconomics. However, at the same time, the academic community admits that the above two basic assumptions may not be completely true, and they are for theoretical analysis. Convenient and set up.

Under these conditions, the experimental results deduced by the model will have a certain gap with the facts.

The basic assumptions of economics from the Principles of Microeconomics (by Memankiw) are:

1. Homo economicus assumption (the pursuit of self-interest maximization).

2. Scarcity assumption (resources are always limited).

3. Non-disgusting (human beings are always insatiable). This book has been adapted by Professor Wu Deqing of the Business School of Chinese University, which is very suitable as a bilingual textbook of microeconomics for undergraduate education of economic management in China, and can also be used for the teaching of MBA and EMBA related courses, and can also be used as a training reference book for business people. Readers who use this book will find that learning microeconomics requires so little effort, and so much gain.

1. Two basic assumptions of microeconomics.

Two basic assumptions of microeconomics:

1.The assumptions of a rational person. This assumption is also known as the "homo economicus" assumption. "Homo economicus" is defined as an abstraction of the general human being in economic life, whose nature is assumed to be self-interested.

2.Assumptions of complete information. The main implication of this assumption is that every economically active individual in the market has complete information about the relevant economic situation.

Second, economics arises from scarcity, scarcity is an absolute and relative concept, and there is absolute scarcity of resources in any society and era; Relative to human desires, there is no scarcity of pure heart and few desires.

Scarcity is the inability to satisfy all desires at the same time, which inevitably leads to choice. The choice is to solve the problem of what to produce, how to produce and for whom. That is, the question of how to produce and how to distribute it.

Economics is all about solving these problems and achieving the rational allocation and full use of limited resources. Choices incur costs, and this is the concept of opportunity cost. The search for a solution to an economic problem lies in comparing the benefits of choice with the opportunity costs.

3. The overall framework structure of microeconomic theory.

The basic structure of microeconomics mainly includes: supply and demand theory, utility theory, production theory and cost theory, market theory, distribution theory, general equilibrium theory, welfare economics, market failure and policy. The theory of supply and demand mainly introduces the analysis of supply and demand, which is the basic tool of the entire microeconomic analysis;

Utility theory mainly analyzes consumer behavior and derives consumer demand curves from it.

The production theory and cost theory mainly analyze the behavior of manufacturers, and this chapter is combined with market theory to deduce the supply curves of manufacturers in different market types.

In this way, the consumer's demand curve and the manufacturer's supply curve together determine the equilibrium ** and equilibrium quantity of goods;

The distribution theory mainly examines the demand side and the supply side of the factors of production, and thus determines the equilibrium and quantity of the factors of production.

The above is the content of the local equilibrium theory, that is, the equilibrium of a single market.

The most basic assumption: homo economicus.

Western economics has three basic assumptions:

The first basic premise is the rational man hypothesis, also known as the maximization principle, which is the most basic premise in Western economics.

The second fundamental premise assumption is the complete assumption of information; The mechanism is an economic mechanism for transmitting information on supply and demand, and the information is completely hypothetically embodied in the free fluctuation; The maximization principle plus the perfect competition assumption can deduce the complete hypothesis of information;

The third basic premise assumption is the market liquidation hypothesis; It has a clear causal relationship with the first two basic premise assumptions and is a logical corollary of the first two.

The development of modern economics revolves around the reflection on these three basic assumptions; Western economics starts from the above three basic assumptions and draws conclusions through mathematical deductive reasoning.

First, it is impossible to understand economic laws without the rational homo economicus hypothesis, and it is impossible to derive any meaningful economic policies. The rational homo economicus hypothesis is an important indicator of the analytical power of modern economics, without which it is impossible to have analytical power. If it is assumed that man is a moral person, society hardly needs any institutional arrangements, no economic policies, not even the state.

Some people say that people are complex people, and if such assumptions are made, economics can only find accidental, and there can be no theoretical simplification, and it will not be able to deal with complex economic phenomena. If you ask people who advocate morality and complexity to analyze criminal cases, you can guarantee that the case will not be solved 100 percent. Because of the loss of the investigation of the motive for the crime, it can only be imagined out of thin air.

Therefore, the transformation from a moral man and a complex man to a rational economic man hypothesis is an important sign of the maturity of modern economics.

Second, section.

2. Rational homo economicus is only a tool for understanding economic laws, and does not advocate that everyone is selfish. Some people regard the hypothesis of rational homo economicus as something that advocates selfishness, as something with a value orientation and policy tendency, as if economists advocate that people are selfish. This is a big misunderstanding.

Third, section.

3. From the perspective of philosophical intent, Marxist economics does not reject the assumption of rational economic man. Some people say that Marx advocated that "man is the sum total of all kinds of social relations", and therefore, Marx did not agree with the rational economic man hypothesis. This conclusion is too arbitrary and accompanied by a certain degree of ignorance.

In fact, Marx's view of man was correct in itself, but he did not object to such assumptions in his economic analysis either. Marx also said this in his analysis of economic and social issues: Everything that people strive for is related to their interests. He said in Capital:

Economical forms of analysis can be carried out neither with microscopes nor with chemical reagents. Both must be replaced by abstract forces. "In essence, rational homo economicus is just an abstraction of complex man, abstracting the factor of altruism and emotion.

Otherwise, it is impossible to analyze the economic problem, and this is the crux of the problem. Each person can optimize the choice of all the opportunities and goals they face and the means to achieve them through the cost-benefit or benefit-avoidance principle.

Adam smith.

There are three main assumptions about the most basic assumptions of economics:

Resource scarcity.

Meaning: The scarcity of resources means that the resources that people use to produce valuable goods and services, such as land, labor, and capital, are generally always scarce. The scarcity of resources is manifested in the fact that they have the best in the market, and their relative size and change trend explain their scarcity to a large extent.

Therefore, scarcity does not refer to the absolute amount of a resource, but to the degree of scarcity relative to market demand. What is not scarce is nothing, or zero, and will not be traded in the market; Everything that is traded in the market has scarcity.

Rational person hypothesis.

Meaning: Microeconomics is the study of people's economic behavior, therefore, its research must be based on certain basic assumptions about human behavior. "Rational homo economicus" is the basic assumption of microeconomics about human behavior when using his resources to engage in economic activities.

This presumption holds that the essence of human nature is self-interest, and that he always tries to maximize his own interests within his limitations; People's self-interest is manifested in economic behavior, that is, people's economic decisions and behaviors are based on the motivation of such behavior: to obtain the maximum economic benefit with the minimum economic cost or opportunity cost. If human behavior is irrational, market mechanisms will not work.

Bounded rationality. Meaning: Although people are rational when engaging in economic activities, their rational ability is limited, that is, their ability to understand things and phenomena is always limited. It is precisely because of this that people need institutions to help them make decisions, to make the right decisions as much as possible within the limits of bounded rationality.

The market mechanism is such a mechanism, which helps people understand the trend of market supply and demand through the relative mechanism, so as to help people make correct economic decisions. If man's rational capacity is unlimited, he can make correct decisions independently without the help of any system, and therefore there is no need for market mechanisms. The conclusion of bounded rationality applies not only to individuals, but also to any organization, including **.

If the above axioms are not true, then the market may not function effectively, or market mechanisms may not be needed; The fact that the market economy has been able to make tremendous progress in turn illustrates the rationality of the hypothetical axioms of economics.

Among the above three axiomatic assumptions, rational homo economicus is the basis of human nature for the effective operation of the market economy, while resource scarcity and bounded rationality constitute the basic limitations of human economic activities.

The most basic assumption of economics is that (rational man).

The meaning is as follows:1Homo economicus hypothesis: The homo economicus hypothesis, also known as the hypothesis of the rational man, is seen as an abstraction of the general man in economic life, whose nature is assumed to be self-interested.

That is, all behaviors in economic life are in line with the so-called rationality, and strive to pursue and obtain their own maximum economic interests at the lowest economic cost.

2.The assumption of resource scarcity refers to the fact that resources are always insufficient relative to people's infinite variety of needs.

To study economics, we must first acknowledge the assumption of resource scarcity, because if resources are sufficient, then there is no need to choose, and there is no need to consider costs, and of course there will be no need for economics to exist and develop.

3.The assumption of multiple economic agents: the economic stakeholders of residents, enterprises, and enterprises are diversified.

FYI.

I think it's the homo economicus hypothesis. Homo economicus is the main body of economic activities for the purpose of completely pursuing material interests, and people hope to get the maximum harvest with as little effort as possible, and can do whatever it takes to achieve this. "Homo economicus"It means rational economic man, which can also be called"Shili people"。