On the Reappraisal of Microeconomics

On the Reappraisal of Microeconomics

Economic Growth and Change in a Material World

Robert U. Ayres and Katalin Martinás

The conventional utility-based approach to microeconomics is now nearly a century old and although frequently criticised, it has yet to be replaced. On the Reappraisal of Microeconomics offers an alternative approach that overcomes most of the objections to orthodox theory, whilst offering some unique additional advantages.

Chapter 5: Decision-Making Strategies

Robert U. Ayres and Katalin Martinás

Subjects: economics and finance, evolutionary economics, environment, ecological economics

Extract

5.1 INTRODUCTION As discussed in Chapter 4, each agent has a unique wealth function, Z. This function reflects all the relevant economic information about the agent’s stocks of goods and its expectations concerning potential stock changes. It also reflects the agent’s expectations with regard to the future behavior of other agents with which it normally interacts, based on past experience. Agents – or outside observers –can learn about other agents’ preferences and expectations by inference from their actions in various circumstances. This information enables the agent to decide whether a possible transaction is consistent, or not, with the expected AAL rule. In the present chapter we investigate exchange mechanisms in several kinds of markets. There are several important distinctions to be made. First, individuals and small businesses are normally price-takers. They may not be willing, or even allowed, to bargain. Most retail markets nowadays do not encourage bargaining. At the opposite extreme, there are a few (but important) examples of buyers – often government agencies (such as the US Defense Department), large commodity traders (like Cargill), major manufacturers (like Ford or GM) or giant retail chains (like Wal-Mart or Sears Roebuck) – that are price-makers, because of their ability to select among many competing would-be suppliers. Finally, there is an in-between category, consisting of artisans, larger shops and medium-sized manufacturers that may act like price-makers with respect to smaller consumers and price-takers when dealing with giant customers, but who can, and do, bargain when dealing with each other. Buyers in most...

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