4 ms·

Should it be called a theorem? It looks to me more like a theory, since economics is not an exact science like mathematics. According to Wikipedia, [1] a theore

by elteto 14y ago

Should it be called a theorem? It looks to me more like a theory, since economics is not an exact science like mathematics. According to Wikipedia, [1] a theorem is fundamentally deductive, in contrast with a scientific theory, which is empirical. [1] http://en.wikipedia.org/wiki/Theorem http://en.wikipedia.org/wiki/Theorem

csense 14y ago
My guess is that it's a "theorem" in the sense that you could come up with some mathematical model of economics in which some translation of Alchain-Allen into a mathematical statement would be a provable mathematical theorem. Alchain-Allen being true in most or every model of economics (as the Church-Turing thesis [1] is true in most models of computation), or being always true in reality, is a much more debatable question. Real demand curves can be mighty pathological, for example, you can have D'(P) > 0 [2] if the good in question is something people buy to show off their wealth, and so actually like it to be more expensive. [1] http://en.wikipedia.org/wiki/Church_Turing_Thesis http://en.wikipedia.org/wiki/Church_Turing_Thesis [2] Economists like to put demand on the horizontal axis and price on the vertical axis. That convention is insane, so I ignore it when I can.
- boomlinde 14y ago
  Regarding [2], forgiving my ignorance in economics, how is that convention insane?
  - jamesoswald 14y ago
    Typically, the independent variable is on the x axis and the dependent is on the y. Most modern economists consider price independent, hence the axes are reversed. The convention was created by Alfred Marshall and everyone has stuck to it ever since. I don't think it matters, since neither variable is causal. The "inputs" of the function are actually the supply and demand curves themselves and the output is both price and quantity.
  - csense 14y ago
    It's more of a science-in-general thing: The near-universal [1] convention used in drawing graphs is to put the independent variable on the x axis. If the independent variable is price, then your thought process will be: "If the price is $100, then there will be 1000 buyers. If the price is $150, then there will be 700 customers." It's easy to think about things that way. If the independent variable is demand, then your thought process will be: "If there are 1000 people buying the product, it must cost $100. If there are 700 buyers, then it must cost $150." It seems counterintuitive to think in this way. [1] Except in economics, of course!
XEKEP 14y ago
Wikipedia article is actually written about Alchian–Allen effect rather then a theorem: http://en.wikipedia.org/wiki/Alchian%E2%80%93Allen_effect http://en.wikipedia.org/wiki/Alchian%E2%80%93Allen_effect

by elteto 14y ago

csense 14y ago

My guess is that it's a "theorem" in the sense that you could come up with some mathematical model of economics in which some translation of Alchain-Allen into a mathematical statement would be a provable mathematical theorem. Alchain-Allen being true in most or every model of economics (as the Church-Turing thesis [1] is true in most models of computation), or being always true in reality, is a much more debatable question. Real demand curves can be mighty pathological, for example, you can have D'(P) > 0 [2] if the good in question is something people buy to show off their wealth, and so actually like it to be more expensive. [1] http://en.wikipedia.org/wiki/Church_Turing_Thesis http://en.wikipedia.org/wiki/Church_Turing_Thesis [2] Economists like to put demand on the horizontal axis and price on the vertical axis. That convention is insane, so I ignore it when I can.

boomlinde 14y ago
Regarding [2], forgiving my ignorance in economics, how is that convention insane?
- jamesoswald 14y ago
  Typically, the independent variable is on the x axis and the dependent is on the y. Most modern economists consider price independent, hence the axes are reversed. The convention was created by Alfred Marshall and everyone has stuck to it ever since. I don't think it matters, since neither variable is causal. The "inputs" of the function are actually the supply and demand curves themselves and the output is both price and quantity.
- csense 14y ago
  It's more of a science-in-general thing: The near-universal [1] convention used in drawing graphs is to put the independent variable on the x axis. If the independent variable is price, then your thought process will be: "If the price is $100, then there will be 1000 buyers. If the price is $150, then there will be 700 customers." It's easy to think about things that way. If the independent variable is demand, then your thought process will be: "If there are 1000 people buying the product, it must cost $100. If there are 700 buyers, then it must cost $150." It seems counterintuitive to think in this way. [1] Except in economics, of course!

XEKEP 14y ago

Wikipedia article is actually written about Alchian–Allen effect rather then a theorem: http://en.wikipedia.org/wiki/Alchian%E2%80%93Allen_effect http://en.wikipedia.org/wiki/Alchian%E2%80%93Allen_effect