4 ms·

Exactly! 15 years ago, I was interested in economics. Since I originally studied physics, and I couldn't help noticing that some very simple examples are missin

Exactly! 15 years ago, I was interested in economics. Since I originally studied physics, and I couldn't help noticing that some very simple examples are missing from the economic textbooks, namely how to build the macroeconomic model (aggregate functions) from the microeconomic ones. One very simple example is to have two markets, one between producer and distributor and another between distributor and consumer. It turns out, there is no "rule" as to what the distributor's cut should be. Any margin is possible! It depends on relative negotiation positions of all parties. So, to say (sufficiently) free markets are the answer is pretty much as no answer at all..

TeMPOraL 11y ago
There is no rule because the answer becomes a (semi-)stable equilibrium of a system of feedback loops. Much of the cases where "sufficiently free markets" are used as an (invalid) answer happen when someone assumes a-priori what the equilibirum will be without considering the actual feedback loops in the system.
lmm 11y ago
If the distributor's cut becomes too large then some producers will switch to become distributors, and vice versa.
- asgard1024 11y ago
  That may happen, but it doesn't answer the question what the cut will be. I don't think there is an answer, since as GP pointed out, in free market, both margins should approach 0, so the ratio can be anything in that limit. This also raises a question, if no one can make a profit, why should people want free market? Basically, free market promises subsistence wages to workers. And what about consumers switching to distributors? That's the problem, you (wrongly) see economy as having two parts - one part producers, another part consumers (and so presumably you put distributors together with producers), but it really isn't like that, it's cyclic. You can't always hammer it into some supply-demand model (that's actually what makes the example interesting!).

TeMPOraL 11y ago

There is no rule because the answer becomes a (semi-)stable equilibrium of a system of feedback loops. Much of the cases where "sufficiently free markets" are used as an (invalid) answer happen when someone assumes a-priori what the equilibirum will be without considering the actual feedback loops in the system.

lmm 11y ago

If the distributor's cut becomes too large then some producers will switch to become distributors, and vice versa.

asgard1024 11y ago
That may happen, but it doesn't answer the question what the cut will be. I don't think there is an answer, since as GP pointed out, in free market, both margins should approach 0, so the ratio can be anything in that limit. This also raises a question, if no one can make a profit, why should people want free market? Basically, free market promises subsistence wages to workers. And what about consumers switching to distributors? That's the problem, you (wrongly) see economy as having two parts - one part producers, another part consumers (and so presumably you put distributors together with producers), but it really isn't like that, it's cyclic. You can't always hammer it into some supply-demand model (that's actually what makes the example interesting!).