From Cambridge to Eternity: “Variation vs Change 02”
Imagine,
as opposed to realizing, the time arrives in the widget market of Mini-polis in
the beginning of May 2036. As usual in the market, the “unit of account” is the
thaler; the medium of exchange is thaler bills, solid or “thin-airy” but
never fluid.
We knew as of yesterday: Demand in
April was p= -2∙q+47
(in thalers) and supply p=1∙ q+ 2
(in thalers); Quantity traded q=15 units of “real” widget and
the “equilibrium price” p= 17 bills
of the “nominal” thaler. Fractions of
widget, if any, were all gone irrelevant.
Looking
ahead through the accounting month of May, we expect that the demand for widget
will sky-rocket due to “Extraordinary Popular Delusions” so as approximately to
appear like p= -2∙q+347 (in thalers), ceteris paribus.
Over-time Change.
Laissez faire, the equilibrium as to
be accounted for on May 31st will be at 115 units and 117thalers.
Realistic? Yes, the history has shown “The Madness of the Crowd”’ every once in
a blue moon.
No matter what, the majority of
macroeconomists would not care about such a “micro-foundation” of widget market
as the peanut of peanuts in the macro-economy. As per the books of “financial” accounting
at any rate, the “real quantity” traded will have grown by 800% per mensis, or 9,000% per annum. That’s the change over time.
Oh, intertemporal!
Scenario B.
As usual in life, there are Drs. Dooms and paranoids: “Market turmoil is highly
contagious. We’ve got to do something about it.” How to prevent the overheating
in the widget market? Oh, that’s the peanut of peanuts. Let’s go fiscal! Just levy
a specific duty of 300 thalers.
We’ll
see: Quantity traded q=15 units
and the “equilibrium price” p= 317
thalers. Now, all set! The market has successfully been “stabilized” to the “natural level of equilibrium.” After all, quantities are “real” while
prices and values are “nominal” or trivial.
Cross-Sectional
Variation. There is an imaginary gap of 100 units
in “real quantities” between Scenario A (Laissez faire) and Scenario B (“Going fiscal”). Mission of cooling
the market accomplished. That’s the variation across the space between scenarios.
Oh, interspatial!
“Exogenous Variable.”
By definition, a parameter represents
the cross-sectional variation. In mathematics of imagination, the section can be continuous, but must be discrete in
the practice of reality. Practically
referring to the actuality, discrete scenarios are to the organism what
discrete sections are to the thing “in equilibrium.”
It would not only be out-shockingly
slippery but also strangely vibratory when crossing over scenarios for the sake
of: say, deriving the AD curve (P vs Y) via varying the “exogenous variable” P in the IS-LM model (r vs Y). Watch Your Steps!
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