gpowell,
The operative statement in my post is here: If one state is preferred to another and this state is achievable, then the economic decision maker will choose it – even if it is arbitrarily close to being an indifferent state.
Not if resources have already been effectively exhausted achieving even more highly preferred states.
>My last purchase was the result of an actual and >substantial subjective preference, and I wouldn't allow >the transaction to be reversed without being forced to do >so involuntarily.
This is a true only in certain markets and only for some market participants within those applicable markets.
I at least partially agree. For finite resources, exchanges for goods that are valued for their subjective use value will always be non-reversible.
However, exchanges for other exchange valued goods may well be effectively reversible for small enough transaction costs and spreads. For example, buying euros with dollars will be reversible with minor impact if done immediately before market exchange rates have a chance to change.
What you are describing is the difference between the reservation price of a particular decision maker and a market equilibrium price. There will be at least one market participant who is close to indifferent to the transaction.
The reservation price is a direct result of the subjective value assigned to one state over another and defines the price at which an economic decision maker will just enter into an exchange. Initially, in the absence of any formal exchange market, you will be induced into exchange whenever you are left with a higher state of satisfaction.
A market price is derived by the aggregate actions of many buyers and sellers in an exchange market, whereby transactions are observable, which allows a greater coordination of action and can result in a price different from the reservation price. Theoretically, we can sum the difference between each participant’s reservation price and the market price to arrive at the concept of consumer surplus.
A consumer surplus exists in certain types of markets, but not all. Consider a discriminating monopolist who identities buyers, and sells to them at, or more precisely just up to, their reservation price. The consumer enters into this transaction because it increases their subjective utility, yet by definition there is zero consumer surplus and all gains from trade go the monopolist. A drug company that sells the same drug for different prices in separate markets is an example of a discriminating monopolist. Interestingly a market of discriminating monopolists is perato optimal.
There are parts of the above that I agree with and parts that I don't. I suspect that the reservation price itself is a flawed concept when the holding of money itself provides satisfaction.
The satisfaction that a given good provides depends not only on what the good can be used for, but also on what money price must be paid for it. As a supplier attempts to approach a consumer's reservation price, if we assume that such exists, from below, the good will fall in its ranking on the consumer's subjective scale of value because of the required price increases. Before the reservation price is reached, the good will have fallen to a ranking that is unachievable with limited resources.
I will set aside the rest, at least for now.
If you can get access to Rothbard, Man, Economy and State, look at Chapter 4, Prices and competition, Section 9, Some fallacies relating to utility, pages 260-268 in volume I of the hardcover edition. It is not available online, AFAIK.
Regards, Don |
