How Do Markets Work ?
Explain what is implied by the assumption that decision-makers are
rational. To what extent is it sensible to think of decisions about
marriage and divorce as rational decisions ?
Economic theory has a tough job. It is essentially trying to distil
the complexities of thousands of thought processes, all types of
transactions and other various decisions we make every day that are
all effected by innumerable variables, into easy to understand, bite
sized pieces of individual theory. Surely it can be forgiven then, for
eliminating one small variable, namely the rationality of the
decision-maker, that you and I take for granted every day. This much
is true, that very little economic theory does not take the rational
behaviour of the consumer as a given and even less would be able to
function effectively without this being so. The question here
challenges us to explore the validity of the claim of unquestionable
consumer rationality and what it actually means when we take for
granted that everyone would always act in a rational manner. What are
the implications for the applicability of economic theory, should the
assumption of economists prove to be incorrect, or indeed if it is
completely true ? I will attempt to explore the implications of this
assumption using examples of where it is a key part of the workings of
economic theory, where a point in the mechanics of a theory arises
when the truth or otherwise of the assumption of consumer rationality.
An example that the question suggests is that of marriage, and if it
is appropriate to claim that such a step can be considered rational
course of action given the factors influencing the decision and surely
in this context, the economic consequences in addition to this.
It follows then that the implications of the assumption that all
decision-makers are rational are multiple for economic theory. Basic
supply and demand, and the subsequent equilibrium that characterises
market economics has at its heart, consumers making rational
decisions. The theory suggests that the price of goods tend to
equilibrium because consumers act rationally. If the price of a good
is below its equilibrium price, it is likely that many consumers will
decide that they will derive more utils from the consumption of that
good than from the consumption of any other good they could buy at the
same price. They would derive more satisfaction from that good than
the opportunity cost buying it. Conversely, should the price be above
the equilibrium, supply and demand is telling us that this is because
consumers are rationally asserting that the opportunity cost of
purchase is more than the satisfaction to be gained from it.
According to the instrumental doctrine of rationality in the version relevant to the argument of this paper, an action (decision, policy, strategy, etc.) is rational provided it is an effective and economical means to the achievement of some de facto objective. If we formulate the instrumentalist position in terms of the familiar doctrine of the practical syllogism, the crucial thesis is that the action which forms the conclusion of the syllogism is rational provided (1) the major premise identifies a de facto objective of the agent's, and (2) the minor premise shows the action to be an effective and economical means to the achievement of that objective. The typical noninstrumentalist position, by contrast, would be that for the action in the conclusion to be one it is rational for the agent to perform, it must serve an objective it is rational for the agent to pursue: the major premise must identify a rational objective of some sort, not simply an objective the agent happens to have.
During the late 1700’s, the United States was no longer a possession of Britain, instead it was a market for industrial goods and the world’s major source for tobacco, cotton, and other agricultural products. A labor revolution started to occur in the United States throughout the early 1800’s. There was a shift from an agricultural economy to an industrial market system. After the War of 1812, the domestic marketplace changed due to the strong pressure of social and economic forces. Major innovations in transportation allowed the movement of information, people, and merchandise. Textile mills and factories became an important base for jobs, especially for women. There was also widespread economic growth during this time period (Roark, 260). The market revolution brought about economic growth through new modes of transportation, an abundance of natural resources, factory production, and banking and legal practices.
This paper aims to provides a full understanding of the free market system and how it can potentially benefit individual’s needs. The free market system is fully explained and classical economist’s views are considered separately as well as in contrast with one another. The specific economists discussed include Ricardo, Marx, and Mill. Their individual opinions on how the free market system could impact the economy is examined and the effects of an economic system controlled by the government is also discussed.
The quantity of a commodity demanded depends on the price of the commodity, the prices of all other commodities, the incomes of the consumers as well as the consumer’s taste. The quantity of a commodity supplied depends on the price obtainable for the commodity as well the price obtainable for substitute goods, the techniques of production, the cost of labor and other factors of production. It is supply and demand that causes a market to reach equilibrium. If buyers wish to purchase more of a commodity than that of which is available at a given price, then the price will to tend to rise. If they wish to purchase less of a commodity than that of which is available, then the price will tend to drop. Consequently, the price will reach equilibrium at which the quantity demanded is just equal to the quantity supplied.
In the United States marriage rates are dipping too new lows. The growing trend of declining marriage rates is understood with an economical approach when analyzing marriage markets. For instance, the demand and supply of husbands can be used to better explain activity in marriage markets. In this paper the demand of husbands is equated to women’s preferences, which are internal and external factors that drive women too marriage. The supply of husbands or male’s preferences, are characteristics men choose to bring to a marriage. When using an economical approach there is overwhelming evidence that the decline in marriage rates is due to a decline in women’s preferences, simply put the demand for husbands. Low demand for husbands can be attributed to; an increase in the labor supply for women, the economic risks associated with being a housewife, and the waning social stigma attached to unmarried women.
Monopoly and oligopoly are two economic market conditions. Both of them are likely to co-exist in our world and they differentiate from each other. In this written paper, I will describe the two market conditions. I will describe the characteristics of each one of them in terms of number of suppliers, product differentiation, advantages and disadvantages and the most challenging types of barriers to entry that exist in both of the market structures.
In particular, Weber’s own description of substantive rationality acknowledges its ambiguity in that the actual values involved in the decision-marking process do not matter as long as actions are goal-oriented and “apply certain criteria of the ultimate ends” (1922/1978, p. 85-6). In contrast, formal rationality focuses on a means-end rational calculation by referring to “universally applied rules, laws, or regulations” (Karlberg, 1980, p. 1158) generally based on objective or quantitative
The stock market plays a significant role in the health of the economy; the economy has to be strong for a country and its citizens to prosper. In 1929 over a period of two weeks 30 billion dollars disappeared from the U.S. economy, this was the event that started the greatest period of human hardship of the twentieth century known as the great depression. On October 19,1987 the Dow Jones industrial average plunged almost a third of its value. Many investors went completely bankrupt after one day of trading. Both of these crashes came without warning in booming markets are the currently booming markets heading for a collapse? The current market resembles both 1929 and1987 markets but there is a smaller possibility for collapse.
... of consumer behaviour, lays emphasis on the objectivity of science and the consumer as a reasonable and sensible decision maker. While, the interpretive point of view is in contrast to that of the positivist, in that it emphasises on the importance of the subjective meaning of the consumers individual experience, hence, it suggest that whichever behaviour a consumer performs is subject to diverse interpretations to a certain extent than just a single explanation to it.
The market today has become so important that society takes it as completely natural. From “The Economic Problem” Heilbroner describes three main solutions, with the market being one. Furthermore into the market, Polanyis book “The great Transformation” gives insight on how much society actually allows the market to dominate. To Polanyi a market society is seen as social relations embedded in the economy instead of the economy being embedded in social relations. Examining both of these books gives a great understanding on how life was without the market and how it came to be. Taking note of Rineharts work as well on how the workplace has drastically been changed by the market is key to analyzing the transformation as a whole. As a result of the transformation, not only has human labour been altered, but another author known as Weber states that certain peoples view on the world have also be affected. This essay will establish how “the great transformation” (Polanyi) from a traditional society to one based on a market economy has vastly impacted societal workplaces, and societal beliefs around faith of idealogical conditions.
A Market Economy is the most efficient way of organizing economic activities. Millions of suppliers (firm) and consumers (buyers) make the markets. The suppliers and consumers sell and purchase goods that satisfy the wants of consumers and suppliers. Suppliers and consumers make rational decisions, respond to incentives and make tradeoffs. Over all trade makes everyone better off.
Evidence of this position is premised on pragmatic reasoning of abiding by societal rules and regulations irrespective of the moral contradictions of others. The interpretation of life choices cannot prevent people from making judgment and perception about those same choices. Additionally, the proponents of common sense insist that cognition is the center of all human actions and not intuition. This contributes to a refined reasoning process, which strives for the unification of the collective good that is utilitarian in its philosophical framework. Accordingly, the possible outcomes of making assumptions under the pretext of moral choices contentiously conflicts with the complex decisions expected of logical determination of phenomena in difficult situations. It is a step steeped in beliefs and attitudes of either the individual or the collective group that aspires for universal good. On the same account, objections raised consider Stuart Mill’s utilitarian concept as the guiding and founding principle of upholding self-sacrifice and setting of standards because it is rational. Mill observes, “our moral faculty, according to all those of its friends who are entitled to count as thinkers, supplies us only with the general principles of moral judgments; it belongs with reason and not with sense-perception (Mill
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
Expected Utility Theory has roots deeply seated in history. Taking notes from as early as the 17th century, the first known person to have written about the value of utility was Pascal, who defined and quantified U while making his argument about the rationality of the existence of God in what has become known as Pascal’s wager (Lengwiler, 2008). Over the following centuries many theorists including Allais, Camerer, Dupuit, Gossen, Bernoilli, and von Neumamm have adapted, revised, or refined the basic principles set out by Pascal (Lengwiler, 2008; Mongin, 1997). Controversy regarding the classical interpretation of EUT falls into two general categories: differences in opinion of the proper mathematical equation to relate probability or risk to reward or the validity of the model based on the possibility of inadequate or non...
The 4 market structures in relation to the benefits and costs to the consumer and producer