[p2p-research] Fwd: More on the Supply and Demand Curve

[Stan Rhodes]

Robert,

I could not find a source connected to your quote and claim that 'most
economists still cling to the “infinite wants” idea.'  If that was the case,
I would expect to have run into it by now, and I would also expect abundant
examples of that assumption.  Does any serious economic literature from the
last, say, 30 years mention the concept as foundational?

Lack of evidence aside, I don't think refutation of infinite human wants
changes anything.  No infinite variables are required to cause a problem
with the allocation of finite resources.  In other words, we need to only
want to do something that will kill us in a few years (completely regardless
of whether we can foresee it or not), and have the means. From an economic
viewpoint, the concern is external costs in our transactions. Infinite-ness
never enters into the concern.  In other words, infinite-ness was never the
problem of "doom by externalities," and revealing finite bounds doesn't
eliminate the problem, either.

My current perspective: the reduction in information asymmetry resulting
from an information commons presents the best chance humanity has of
reducing negative externalities in transactions.

-- Stan

On Wed, Jul 1, 2009 at 9:43 PM, Michel Bauwens <michelsub2004 at gmail.com>wrote:

>
>  A very *important contribution to abundance theory<http://p2pfoundation.net/Abundance_vs._Scarcity>
> * by Roberto Verzola<http://rverzola.wordpress.com/2009/01/21/finite-demand-makes-relative-abundance-possible/>
> :
>
> *“It is almost by definition that economists predominantly focus on
> scarcity, when they define economics as the study of “the most efficient
> ways to allocate scarce resources to meet infinite human wants”. If, indeed,
> people had infinite wants, then not even all the resources of this finite
> world will be enough for a single person.*
>
> *But I contend that consumer demand is not infinite. There exist physical,
> physiological, psychological and cultural limits - both actual and potential
> - to consumption which can keep individual as well as collective needs and
> wants within finite bounds.*
>
> *If demand is finite, then satisfying this demand becomes a real
> possibility, and relative abundance is within reach.*
>
> *The following three concepts will help show that demand can remain within
> finite bounds:*
>
> *Satiation. Economists define satiation as the consumption level which the
> consumer most prefers. *
>
> *The closer he is to this level, writes economist Hal Varian, “the better
> off he is in terms of his own preferences”.This satiation level is also
> called bliss point. Beyond it, the consumer becomes indifferent towards
> getting more of the same good or may even prefer to have less of the good.
> While many economists still cling to the hedonist principle that “more is
> always preferred to less,” some acknowledge, at least in theory, that a
> satiation level exists for some, if not most, goods. Varian, in particular,
> says that most goods have a satiation point and that “you can have too much
> of nearly anything,” which contradicts the “infinite wants” assertion in
> most definitions of economics.*
>
> *Saturation. While satiation may apply more to the psychological attitude
> of a consumer not wanting more, saturation is more about the physiological
> or physical incapacity of a person to consume more. *
>
> *Beyond the saturation point, one’s body will either become incapable or
> involuntarily reject additional servings of food and drinks. One can only
> wear so many clothes, or shoes. One can listen to only so many CDs or watch
> only so many videos. There are only twenty-four hours a day after all.*
>
> *To reach the brain, a sense stimulus takes around 10-20 milliseconds. To
> respond in a conscious way, neuro-scientists have found out, the brain takes
> longer - around 500 milliseconds (half a second).2 This suggests that our
> brain can only enjoy at most two distinct events every second or about
> 170,000 every twenty-four hours. For a world with some six billion people,
> that adds up to maximum of one quad (i.e., quadrillion) consumption events
> per day. That is a huge number, it is true, but finite nevertheless. Most of
> us will probably be too saturated long before that point.*
>
> *However, the concept of saturation as distinct from satiation is missing
> in consumer theory and most economists still cling to the “infinite wants”
> idea.*
>
> *Satisficing. Even before we reach our satiation or saturation levels, we
> may already reach our “satisficed” level, in which the quantity we have of a
> particular good or bundle of goods already suffices to satisfy, and beyond
> which we would only weakly prefer more.*
>
> *The idea that consumers satisfice rather than optimize when fitting their
> wants to their budget was first raised by psychologist Herbert Simon, who
> subsequently won the Economics Nobel Prize in 1978.*
>
> *Any of these “sat” concepts - certainly all of them, together - are
> sufficient to argue that individual and likewise aggregate demand have
> finite bounds.*
>
> *This justifies the following assertion: some consumers have a satisficing
> level for some goods. We will leave to future research the debate whether
> the weak assertion of “some consumers” and “some goods” can, in some
> contexts or periods, be changed to a stronger assertion of “some consumers
> for all goods”, “all consumers for some goods”, or even “all consumers for
> all goods”.*
>
> *The above assertion leads directly to a formal definition of abundance: when
> a person can afford enough quantity of a good to reach his/her satisficed
> level, then the person enjoys a state of abundance for that good. *
>
> *The concept is not new. Gandhi must have been referring to abundance when
> he said, “the Earth has enough for everyone’s need”. This definition also
> allows a good’s state of abundance with respect to one person to be
> quantified. For instance, if a person’s satisficing level is five pairs of
> shoes, but s/he can only afford two pairs, then s/he enjoys a state of
> abundance of 40% (two out of five) with respect to shoes. This makes it
> simple to relate abundance to its inverse, scarcity: the person needs three
> pairs more to reach the five-pair satisficed level. Thus s/he faces a
> scarcity level of 60%.*
>
> *Economics usually assumes that business firms maximize their profits by
> producing until their marginal cost (the cost of the next additional unit)
> equals their marginal revenue (unit price of the good). If, in addition to
> this behavioral assumption, we also assume diminishing returns or decreasing
> returns to scale, this will eventually result in increasing marginal costs.
> Thus business firms will, in theory, reach their satiation level when they
> reach their maximum profits.*
>
> *This also means, however, that profitable firms employing technologies
> with constant or increasing returns to scale will face constant or
> decreasing marginal costs. They will therefore have no profit maximum and
> likewise no satiation level. These firms will conform to the theoretical
> hedonist image for whom “more is always preferred to less”, and whose desire
> to purchase is limited only by their budget and nothing more. They will also
> try to keep increasing their scale of operations, as they go after higher
> and higher profits - making them an engine of globalization. Here is a
> possible answer, by the way, to what some economists consider a mystery,
> that “neoclassical theory has no full explanation of why firms grow at all,
> nor why it is that the typical pattern of the growth rates of firms seems to
> lead inexorably towards persistently increasing aggregate business
> concentration.”*
>
> 6 notes and references available here<http://rverzola.wordpress.com/2009/01/21/finite-demand-makes-relative-abundance-possible/>
> .
>
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