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Why does uncertainty upset the orthodox benchmark of competitive equilibrium?
Why does uncertainty upset the orthodox benchmark of competitive equilibrium?
Posted 29 July 2008 - 11:05 AM
Just using the definition of orthodox theorists, leves it wide-open to criticism in that there is too much uncertainty to be "fully informed" in the market, either consumers or producers. If all could even guess to future accurately, then entrepreneurs would disappear and there would be basically one producer making no more than the discounted value, no profits.
Murphy
Posted 20 September 2008 - 11:04 PM
Mart Grams, on Jul 29 2008, 11:05 AM, said:
Just using the definition of orthodox theorists, leves it wide-open to criticism in that there is too much uncertainty to be "fully informed" in the market, either consumers or producers. If all could even guess to future accurately, then entrepreneurs would disappear and there would be basically one producer making no more than the discounted value, no profits.
Right. More generally, in the mainstream definition of a competitive market, firms wouldn't need to perform the equilibrating role that they serve in the real world. It's not surprising that the models don't see the benefits of complete laissez-faire, since the models assume away uncertainty.