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To: gpowell who wrote (281)	11/13/2003 1:52:48 PM
From: gpowell	Read Replies (2) \| Respond to of 445

Supply side Priliminary comments. A supplier supplies goods and services that satisfies the wants and needs of consumers. It might be useful to discard the distinction between consumers and suppliers and to define both as market participants exhibiting utility maximizing behavior through the exchange of goods and services. A supplier applies a transformation process on inputs to produce outputs. In the simplest case the transfer process is an identity, whereby the inputs remain unchanged. An endowment of some good that is costlessly offered for exchange is an example of an identity process. A supplier of an endowment good will participate in exchange, up to the point where the marginal rate of substitution between the goods exchanged is equal. All market participants desire to maximize utility, maximum utility is achieved through the satisfaction of wants and needs, and constraints define the limits to which wants and needs can be satisfied. It is observed that constraints have tended to ease with time, therefore any delay in immediate consumption is consistent with utility maximizing behavior.

To: gpowell who wrote (281)	11/17/2003 5:45:13 PM
From: gpowell	Read Replies (1) \| Respond to of 445

Further Notes on MRS. As decision makers move towards utility maximization, the path becomes indeterminate at points of indifference. When a decision maker faces a move to a state of higher utility, and if there is more than one state at this same higher utility, we cannot predict which state the decision maker will chose. Indifference sets are used to contain these equally preferred states and each point in the indifference set becomes an equally likely point of exchange. In addition, each state in the indifference set has a relationship with every other state in the set - this relationship is defined by the marginal rate of substitution between states. As individual decision makers become coordinated in exchange markets, it is the intersection of indifference sets that define which exchanges will occur. The utility maximization principle places a condition that the exchange will occur at points where the marginal rate of substitution of the market participants are equal.