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How Economists Can Use the Laws of Physics On the Example of the Notion of Entropy in its Application to Some Economic Conceptions

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  • Liudmyla Vozna

Abstract

This article deals with the notion of entropy in its applicability to economics. Briefly, it regards some classical cases of such a use as the labour concept of Podolinsky and the bioeconomics of Georgescu-Roegen. This article also attempts to apply the concept of entropy to the analysis of market structures in the example of the perfect competition model. Thus, the article asserts that if we compare different entropy concepts with the main characteristics of a market with perfect competition, we must conclude that the latter is a structure with the maximum level of entropy. But maximum entropy means the system’s death. So, as a system or a structure, a perfectly competitive market cannot exist. When analysing such a model, economists recognise its impossibility in real life from an empirical point of view. However, the application of the entropy concept helps us to repeat this approval also as a methodological one. The use of the entropy concept as a methodological instrument helps to question some other economic models, too.

Suggested Citation

  • Liudmyla Vozna, 2016. "How Economists Can Use the Laws of Physics On the Example of the Notion of Entropy in its Application to Some Economic Conceptions," STOREPapers 1_2016, Associazione Italiana per la Storia dell'Economia Politica - StorEP.
    • Handle: RePEc:hpo:wpaper:1_2016
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    References listed on IDEAS

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    1. Geoffrey M Hodgson, 2012. "On the Limits of Rational Choice Theory," Economic Thought, World Economics Association, vol. 1(1), pages 1-5, July.
    2. John Gowdy & Susan Mesner, 1998. "The Evolution of Georgescu-Roegen's Bioeconomics," Review of Social Economy, Taylor & Francis Journals, vol. 56(2), pages 136-156.
    3. G. J. Stigler, 1972. "Perfect Competition, Historically Contemplated," Palgrave Macmillan Books, in: Charles K. Rowley (ed.), Readings in Industrial Economics, chapter 7, pages 105-130, Palgrave Macmillan.
    4. Nicholas Georgescu-Roegen, 1986. "The Entropy Law and the Economic Process in Retrospect," Eastern Economic Journal, Eastern Economic Association, vol. 12(1), pages 3-25, Jan-Mar.
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    More about this item

    Keywords

    Entropy; the Second Law of Thermodynamics; Market Structure; Perfect Competition; Uncertainty; Information; Disorder;
    All these keywords.

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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