Economics 5100 Quiz - Essay Example

Value Scales versus Utility Functions Modern neo ical economist use, the utility, functions to explain individual needs and preferences. To maximize utility people, Rothbard argues that an individual satisfies the highest positioned feasible preferences on the value chain. Rothband insisted that the value scale is the only approach that defines individual utility. According to him value scales are ordinal scale, and there is no way the ranking between one scales to another may be a fallacy.

Rothband says that the utility cannot be measured as the quantity, but rather are ranks. He disagrees with the mainstream argument that the utility can be measured as the quantity. Moreover, he disputes the equilibrium marginal utility because it is defined by quantifying utilities of goods as the ratios to their prices (Caplan). The utility function is based on ordinal utility and Rothbard is correct to point these ideas in the modern neoclassical era. Other neoclassical theorist such as Debreau and Arrow avoided the mistake of using cardinal utility.

Therefore, utility function explains the ordinal preference where a person prefer a higher utility in the beginning and decreases as he demands more of a particular good or service. However, Rothband failed to use his ideas of utility versus values scale to in his analysis of taxation and labor income. In contrast, he borrowed from the main stream to derive an income and substitution effect of increase or decrease in taxation on labor income. He, therefore, accuses wrongly the modern neoclassical on the use of cardinal scale.

The modern neoclassical theorists argue that the use of cardinal utility is to emphasise the individual preferences, and it is no way used to refer to utility in itself (Caplan). Debreauy and Arrow were able to derive income and substitution effect which Rothbard failed to do. Critique Meltzer discusses the success of postwar world and says that since the end of the Second World War the world has recorded economic growth that was not witnessed before. He says that the living standard of the people increased and people are now living for longer years compared to the periods before the start of the World War II.

However, Meltzer fails to mention that inequality has widened with the advent of capitalist ideas. This has contributed the flaws of capitalism in the 21st Century. Meltzer argues that the international trade can only flourish and benefit the people when there are no barriers across borders. This is true because there have been increased trade and flow of technology from developed countries to developing nations. The developed countries acquire revenue through trade of machines while developing countries exports agricultural goods and imports new technology to mechanize agriculture and industries.

Nevertheless, the growth of the country debt has increased since the economist argument for support of deficit in order to move economies out of depression. The U.S government, for example, has more foreign debt than any other country. However, it has not reached a critical level because the economic fundamentals are strong. Work Cited Caplan, Bryan. Why I Am Not an Austrian Economist. Web. Gmu.edu. Web. 06 April. 2014. < http://econfaculty.gmu.edu/bcaplan/whyaust.htm>. Meltzer, Allan. Why Capitalism? New York. Oxford University press. 2012.