Schotter Ch 4 - C H A P T ER 4 TTcfw_E ROBTEM P OF EqCHANGE ln C h rp l e f l q c a s s u mc d h ri s re.e o f f efectl y c onpeti ri ve arkel s e

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CHAPTER 4 EvcD dxv ihe feople trr our prinitirc cco.omy sFnd the momrng harlestlng and gdthefin! f rlr IhrI gro$s oD lhc (rcc\ !n.l bulhes.rouid rhenr. lndilidual propen! ri3hts e\ sr xrd nre respecrcd by both rgcnts. Neither of them sieils tlre iiLrir harlened by lhe orher Transters ol liuil bcl$ccn otrr rgents a|e nrade only thfoLrgh trades lolur- tarily enrered iffo b,! bo{h p.lt'rics. TT{E PROBTEM OF EqCHANGE ln Chrplef -l qc assumcd Lh. .risre. .e of fefectly conpetirive narkels eve lhough Ne had no ider hof such mrrkcts deveioped in ouf ffjnririle societ) \Ve n.rde this assul plion bectiun' $c \crc interested in lnrl,!zing hor consuners $ith lhe prcler ences descfibed nr Chattcr 2 wonjd behave ifthey were placed xr large nnperso al lnarkels urlrkc(s whcr. price! rre rei a.onyrloLrsll and lr.tdi g does noL ir\ollc feAolirl ir)rctucrior. In this chrprer Ne will tun our rllerlion lo lhe pnccss by wnrch co pelili\e nurk.ls cmcrgc.l. We knoe rhar comfctili\c nrrrket\ did not al$lls eriil. TLey.ncrgcd l|t y)nrc porrl ir hislorl Lo {)l\c m c.ononri. problen tbrt societ,! lhced. To help u\ under- slard h.,r and wh! compctitive markets wefe crcaled. $e fill invesLigatc r primiLi!c lwo-pcboD ccoDom nhabited bv the types of people discusscd m ChapLci 2. Wc will begiu our s(ud) of lhis t\rr ltAon econorr) b) er.rrniDing lhc troc.ss ol brr(cr cx cbrngc Our rnxl)sis will involve the use 01 a cor)stract cxllcd tllc [..1q.\otth b.\, $hich wili allow us to deline set of.Jlt.ifrr t?.1.! U\iDg r conccpt kno$n as the .rff, $,c wiil rlso be.rhle io deiile a ier o1 ?./rililrfi , rzJ.!. A\ thc chrfter progfesses. ouf si ple l$o fcry)n ccono.ry will gfo$ in s;ze. Erch ol our two xsenis will nrultipl) proforti(Drtclt i o mr.y rgents of the s.rrne t!pe. CompcLitlve nrarkers wrll enrer€e
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116 CITAPTTR 4 THX PROBITM OF EXCIIANCI Let us begin our analysis by looking more closely at the agenrs who consrirute our two-person economy Geoftey and Elizabeth. They haFest two rypes of fruit: apples and mspbenies. Because apples grow on tall trees but raspbsries grow on bushes close to ihe ground, Geoffrey, the ialler of the two, usually picks more apples snd fewer rasp- berries than Elizabeth. For the sahe of simpliciry, 1er us assume lhat ceoffrey picks eight pounds of apples and two pounds of raspbe ies every day, while Elizabeth picks lwo pounds of apples and six pounds of raspbenies every day. Therefore, because all the haflesting is done in the moming, by the end of each moming, this economy con- sists of ten pounds of apples and eight pounds of raspbelries. ceoffrey and Elizabeth
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This note was uploaded on 09/18/2010 for the course ECON 383I taught by Professor Roth during the Spring '09 term at Binghamton University.

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Schotter Ch 4 - C H A P T ER 4 TTcfw_E ROBTEM P OF EqCHANGE ln C h rp l e f l q c a s s u mc d h ri s re.e o f f efectl y c onpeti ri ve arkel s e

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