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# Famous Figures and Diagrams in Economics

This is a unique account of the role played by 58 figures and diagrams commonly used in economic theory. These cover a large part of mainstream economic analysis, both microeconomics and macroeconomics and also general equilibrium theory.

This is a unique account of the role played by 58 figures and diagrams commonly used in economic theory. These cover a large part of mainstream economic analysis, both microeconomics and macroeconomics and also general equilibrium theory.

The authoritative contributors have produced a well-considered and definitive selection including some from empirical research such as the Phillips curve, the Kuznets curve and the Lorenz curve. Almost all of them are still found in contemporary textbooks and research. Each entry presents an accurate and concise record of the history of the figure or diagram, including later developments and any controversy that arose in its development. As a whole, the book highlights how the use of geometric methods has played a central part in the development of economic theory and analysis; as a method of discovery, more commonly as a method of exposition and occasionally as a method of proof of propositions in economic theory and analysis.

This highly anticipated book will appeal to theorists in microeconomics or macroeconomics, scholars of economic theory and analysis, as well as students in microeconomics, general equilibrium theory or macroeconomics at the advanced undergraduate or graduate level who want a definitive account of some figure or diagram. Historians of economic thought and methodologists will also find this book an invaluable resource.

The authoritative contributors have produced a well-considered and definitive selection including some from empirical research such as the Phillips curve, the Kuznets curve and the Lorenz curve. Almost all of them are still found in contemporary textbooks and research. Each entry presents an accurate and concise record of the history of the figure or diagram, including later developments and any controversy that arose in its development. As a whole, the book highlights how the use of geometric methods has played a central part in the development of economic theory and analysis; as a method of discovery, more commonly as a method of exposition and occasionally as a method of proof of propositions in economic theory and analysis.

This highly anticipated book will appeal to theorists in microeconomics or macroeconomics, scholars of economic theory and analysis, as well as students in microeconomics, general equilibrium theory or macroeconomics at the advanced undergraduate or graduate level who want a definitive account of some figure or diagram. Historians of economic thought and methodologists will also find this book an invaluable resource.

‘. . . the book is a marvellous achievement and a major contribution to the history of economic thought. . . The book provides a genuinely interesting perspective on the development of modern economics. Each diagram illustrates a single analytical point, but there is a cumulative logic to the exposition of the various diagrams that reproduce the main turns in the development of modern economic theory. So reading the book cover-to-cover is an excellent way of working through the logic of the discipline. . . Famous Figures and Diagrams in Economics is a major contribution to the history of economic thought and repays close study by anyone who wants to have a better understanding of how economists reason.’

– Daniel Little, Journal of Economic Methodology

‘. . . there is much of interest in this volume. . . The study under review makes for enjoyable reading for those who either have drawn economic diagrams on the blackboard as part of their teaching, or, for that matter, for those who as students recall painful inability to understand the point of the diagram, so carefully constructed on the blackboard by one of their teachers.’

– Peter Groenewegen, History of Economics Review

‘A picture is said to be worth a thousand words. A picture can easily be worth two or three equations, and it is certainly more memorable. I can draw and use an Edgeworth box more quickly than I can write down its formulas. There is a vast amount of economics packed into the 58 diagrams and expert commentaries in this unique book. Take it with you to your favourite desert island. All you need is a sandy beach and a pointed stick.’

– Robert Solow, Massachusetts Institute of Technology, US

‘This book is a goldmine of information and interpretation for historians of economics, and thoughtful economists of all kinds. The origin and evolution of important figures and diagrams in economics will now be instantly at their fingertips. The authors of the entries are a galaxy of distinguished economists and historians whose accounts can be trusted. One must ask why no one has put together such a collection before.’

– Craufurd Goodwin, Duke University, US

‘Economics relies on verbal reasoning, geometry and formal mathematics. Advances and insights in the subject come in all these ways. This splendid book shows the power of geometric analysis, which I have favoured in my own work, drawing on several famous diagrams that have made their way into the literature. It is a book to be savoured and learnt from.’

– Jagdish Bhagwati, Columbia University, US

‘Here is a feast of diagrams, presented by many expert authors in a context of history of thought. It will be very useful for researchers, students and textbook writers.’

– Max Corden, University of Melbourne, Australia

‘Francis Collins oversaw the human genome project. Mark Blaug and Peter Lloyd have done the same for economics, demonstrating that figures and diagrams are the DNA building blocks of the discipline. This book has them all: backward-bending labor supply, cobweb diagram, circular flow, production possibility frontier, Stolper-Samuelson box, IS/LM, the Phillips curve and many more. Each is portrayed, its importance explained, its origin revealed, and the reader often encounters Stigler’s Law of Eponymy (No scientific discovery is named after its original discoverer).’

– Kenneth G. Elzinga, University of Virginia, US

‘Both students and professors will welcome this original and unique collection. Analytically tighter and more complete expositions than much existing literature should be very welcome in graduate theory courses. Authors of history of economic thought texts will have to clarify and correct the historical record regarding who said what and when, and both reconfigure the assignment of credit and question use of the term “precursor”: early users did more than hint at the full development; often creating tools.’

– Warren Samuels, Michigan State University, US

– Daniel Little, Journal of Economic Methodology

‘. . . there is much of interest in this volume. . . The study under review makes for enjoyable reading for those who either have drawn economic diagrams on the blackboard as part of their teaching, or, for that matter, for those who as students recall painful inability to understand the point of the diagram, so carefully constructed on the blackboard by one of their teachers.’

– Peter Groenewegen, History of Economics Review

‘A picture is said to be worth a thousand words. A picture can easily be worth two or three equations, and it is certainly more memorable. I can draw and use an Edgeworth box more quickly than I can write down its formulas. There is a vast amount of economics packed into the 58 diagrams and expert commentaries in this unique book. Take it with you to your favourite desert island. All you need is a sandy beach and a pointed stick.’

– Robert Solow, Massachusetts Institute of Technology, US

‘This book is a goldmine of information and interpretation for historians of economics, and thoughtful economists of all kinds. The origin and evolution of important figures and diagrams in economics will now be instantly at their fingertips. The authors of the entries are a galaxy of distinguished economists and historians whose accounts can be trusted. One must ask why no one has put together such a collection before.’

– Craufurd Goodwin, Duke University, US

‘Economics relies on verbal reasoning, geometry and formal mathematics. Advances and insights in the subject come in all these ways. This splendid book shows the power of geometric analysis, which I have favoured in my own work, drawing on several famous diagrams that have made their way into the literature. It is a book to be savoured and learnt from.’

– Jagdish Bhagwati, Columbia University, US

‘Here is a feast of diagrams, presented by many expert authors in a context of history of thought. It will be very useful for researchers, students and textbook writers.’

– Max Corden, University of Melbourne, Australia

‘Francis Collins oversaw the human genome project. Mark Blaug and Peter Lloyd have done the same for economics, demonstrating that figures and diagrams are the DNA building blocks of the discipline. This book has them all: backward-bending labor supply, cobweb diagram, circular flow, production possibility frontier, Stolper-Samuelson box, IS/LM, the Phillips curve and many more. Each is portrayed, its importance explained, its origin revealed, and the reader often encounters Stigler’s Law of Eponymy (No scientific discovery is named after its original discoverer).’

– Kenneth G. Elzinga, University of Virginia, US

‘Both students and professors will welcome this original and unique collection. Analytically tighter and more complete expositions than much existing literature should be very welcome in graduate theory courses. Authors of history of economic thought texts will have to clarify and correct the historical record regarding who said what and when, and both reconfigure the assignment of credit and question use of the term “precursor”: early users did more than hint at the full development; often creating tools.’

– Warren Samuels, Michigan State University, US

Contributors: S. Ashok, R.E. Backhouse, W.J. Baumol, M. Blaug, R. Boyer, L. Cameron, J.S. Chipman, A.J. Cohen, J.S. Cramer, J. Creedy, A.V. Deardorff, R.W. Dimand, A. Dixit, R. Dixon, B.C. Eaton, J. Eichberger, N. Erkal, R. Färe, L. Gangadharan, N. Giocoli, Y. Giraud, S. Grosskopf, H. Haller, D.W. Hands, G.C. Harcourt, T.M. Humphrey, R.W. Jones, N. Kakwani, M. Kemp, J.E. King, A.O. Krueger, D. Laidler, C. Lee, R.G. Lipsey, P. Lloyd, F. Maclachlan, R. Middleton, M. Nerlove, Y.-K. Ng, A. Panagariya, P. Rodenburg, R. Rothschild, M. Schneider, H.-l. Shi, A. Skinner, B.J. Spencer, H. Thompson, J. Whalley, R. Williams, W.C. Woo, A.D. Woodland, W. Young

Contents:

Introduction

Mark Blaug and Peter Lloyd

PART I: SINGLE MARKET ANALYSIS (PARTIAL EQUILIBRIUM)

Basic Tools of Demand and Supply Curve Analysis

1. Marshallian Cross Diagrams

Thomas M. Humphrey

2. The Stability of Equilibrium

Mark Blaug

3. Indifference Curves and Isoquants

Mark Blaug and Peter Lloyd

4. The Elasticity of Substitution

Robert Dixon

5. Substitution and Income Effects

Hans Haller

6. Engel Curves

Ross Williams

7. Homothetic Production and Utility Functions

Rolf Färe and Shawna Grosskopf

8. Long-run and Short-run Cost Curves

Fiona Maclachlan

9. The Product Exhaustion Theorem

Cassey Lee

10. Classification of Technical Change

Robert Dixon

11. Nash Equilibrium

Jürgen Eichberger

Welfare Economics

12. Consumer Surplus

Yew-Kwang Ng

13. The Harberger Triangle

Yew-Kwang Ng

14. Community Indifference Curves and the Scitovsky ‘Paradox’

Richard G. Lipsey

15. The Taxation of External Costs

Yew-Kwang Ng

16. Monopoly and Price Discrimination

William J. Baumol

17. Duopoly Reaction Curves

Nicola Giocoli

18. Monopolistic Competition

Andrew Skinner

19. Kinked Demand Curves

R. Rothschild

Special Markets and Topics

20. Backward-bending Labour Supply Curves

John E. King

21. Location Theory: The Contributions of von Thünen and Lösch

B. Curtis Eaton and Richard G. Lipsey

22. Hotelling’s Model of Spatial Competition

Nisvan Erkal

23. Cobweb Diagrams

Marc Nerlove

24. Reswitching and Reversing in Capital Theory

Avi J. Cohen and Geoffrey C. Harcourt

25. The Markowitz Mean-variance Diagram

Fiona Maclachlan

26. Rent-seeking Diagrams

Anne O. Krueger

27. The Logistic Growth Curve

J.S. Cramer

28. Graph Theory and Networks

Cassey Lee

PART II: GENERAL EQUILIBRIUM ANALYSIS

Basic Tools of General Equilibrium Analysis

29. Circular Flow Diagrams

Roger E. Backhouse and Yann Giraud

30. The Unit Simplex

John Whalley

31. The Edgeworth Box

John Creedy

32. The Role of Numbers in Competition

John Creedy

33. Production Possibility Frontiers

Ronald W. Jones

34. The Utility-Possibility Frontier

John S. Chipman

35. The Factor Price Frontier

Alan D. Woodland

36. Pareto Efficiency

Peter Lloyd

37. The Phase Diagram Technique for Analyzing the Stability of Multiple-market Equilibrium

D. Wade Hands

38. The Theory of Second Best and Third Best

Wai Chiu Woo

Open Economies

39. The Offer Curve

Murray Kemp

40. The Stolper-Samuelson Box

Henry Thompson

41. The Lerner Diagram

Alan V. Deardorff

42. The Trade Theory Diagram

Peter Lloyd

43. The Four-quadrant Diagram for the Two-sector Heckscher-Ohlin Model

Arvind Panagariya

44. The Integrated World Equilibrium Diagram

Avinash Dixit

45. The Optimal Tariff

Murray Kemp

PART III: MACROECONOMICS

Macroeconomic Analysis and Stabilisation

46. Keynesian Income Determination Diagrams

Michael Schneider

47. The IS-LM Diagram

Warren Young

48. The Fleming-Mundell Diagram

Russell Boyer and Warren Young

49. The Aggregate Demand Aggregate Supply Diagram

Richard G. Lipsey

50. The Phillips Curve

Richard G. Lipsey

51. The UV or Beveridge Curve

Peter Rodenburg

52. The Demand Curve for Money

David Laidler

53. Non-neutrality of Money

He-ling Shi

54. The Laffer Curve

Roger Middleton

Growth, Income Distribution and Other Topics

55. Intertemporal Utility Maximization – the Fisher Diagram

Thomas M. Humphrey

56. The Diagrams of the Solow-Swan Growth Model

Barbara J. Spencer and Robert W. Dimand

57. The Lorenz Curve

Nanak Kakwani

58. Kuznets Curves

Lisa Cameron, Lata Gangadharan and Sowmiya Ashok

Index

Introduction

Mark Blaug and Peter Lloyd

PART I: SINGLE MARKET ANALYSIS (PARTIAL EQUILIBRIUM)

Basic Tools of Demand and Supply Curve Analysis

1. Marshallian Cross Diagrams

Thomas M. Humphrey

2. The Stability of Equilibrium

Mark Blaug

3. Indifference Curves and Isoquants

Mark Blaug and Peter Lloyd

4. The Elasticity of Substitution

Robert Dixon

5. Substitution and Income Effects

Hans Haller

6. Engel Curves

Ross Williams

7. Homothetic Production and Utility Functions

Rolf Färe and Shawna Grosskopf

8. Long-run and Short-run Cost Curves

Fiona Maclachlan

9. The Product Exhaustion Theorem

Cassey Lee

10. Classification of Technical Change

Robert Dixon

11. Nash Equilibrium

Jürgen Eichberger

Welfare Economics

12. Consumer Surplus

Yew-Kwang Ng

13. The Harberger Triangle

Yew-Kwang Ng

14. Community Indifference Curves and the Scitovsky ‘Paradox’

Richard G. Lipsey

15. The Taxation of External Costs

Yew-Kwang Ng

16. Monopoly and Price Discrimination

William J. Baumol

17. Duopoly Reaction Curves

Nicola Giocoli

18. Monopolistic Competition

Andrew Skinner

19. Kinked Demand Curves

R. Rothschild

Special Markets and Topics

20. Backward-bending Labour Supply Curves

John E. King

21. Location Theory: The Contributions of von Thünen and Lösch

B. Curtis Eaton and Richard G. Lipsey

22. Hotelling’s Model of Spatial Competition

Nisvan Erkal

23. Cobweb Diagrams

Marc Nerlove

24. Reswitching and Reversing in Capital Theory

Avi J. Cohen and Geoffrey C. Harcourt

25. The Markowitz Mean-variance Diagram

Fiona Maclachlan

26. Rent-seeking Diagrams

Anne O. Krueger

27. The Logistic Growth Curve

J.S. Cramer

28. Graph Theory and Networks

Cassey Lee

PART II: GENERAL EQUILIBRIUM ANALYSIS

Basic Tools of General Equilibrium Analysis

29. Circular Flow Diagrams

Roger E. Backhouse and Yann Giraud

30. The Unit Simplex

John Whalley

31. The Edgeworth Box

John Creedy

32. The Role of Numbers in Competition

John Creedy

33. Production Possibility Frontiers

Ronald W. Jones

34. The Utility-Possibility Frontier

John S. Chipman

35. The Factor Price Frontier

Alan D. Woodland

36. Pareto Efficiency

Peter Lloyd

37. The Phase Diagram Technique for Analyzing the Stability of Multiple-market Equilibrium

D. Wade Hands

38. The Theory of Second Best and Third Best

Wai Chiu Woo

Open Economies

39. The Offer Curve

Murray Kemp

40. The Stolper-Samuelson Box

Henry Thompson

41. The Lerner Diagram

Alan V. Deardorff

42. The Trade Theory Diagram

Peter Lloyd

43. The Four-quadrant Diagram for the Two-sector Heckscher-Ohlin Model

Arvind Panagariya

44. The Integrated World Equilibrium Diagram

Avinash Dixit

45. The Optimal Tariff

Murray Kemp

PART III: MACROECONOMICS

Macroeconomic Analysis and Stabilisation

46. Keynesian Income Determination Diagrams

Michael Schneider

47. The IS-LM Diagram

Warren Young

48. The Fleming-Mundell Diagram

Russell Boyer and Warren Young

49. The Aggregate Demand Aggregate Supply Diagram

Richard G. Lipsey

50. The Phillips Curve

Richard G. Lipsey

51. The UV or Beveridge Curve

Peter Rodenburg

52. The Demand Curve for Money

David Laidler

53. Non-neutrality of Money

He-ling Shi

54. The Laffer Curve

Roger Middleton

Growth, Income Distribution and Other Topics

55. Intertemporal Utility Maximization – the Fisher Diagram

Thomas M. Humphrey

56. The Diagrams of the Solow-Swan Growth Model

Barbara J. Spencer and Robert W. Dimand

57. The Lorenz Curve

Nanak Kakwani

58. Kuznets Curves

Lisa Cameron, Lata Gangadharan and Sowmiya Ashok

Index