Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 12/2014: The Market in Economics: Behavioural Assumptions and Value Judgments.

Agnar Sandmo ()
Additional contact information
Agnar Sandmo: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway

Abstract: This paper tries to convey the essence of the economic theory of behaviour of individuals and firms to an audience of non-economists. The hypotheses of utility and profit maximization and their use as building blocks in the theory of market equilibrium are explained. The paper discusses the efficiency of the market mechanism and sources of market failure. It considers the origin of preferences and the role played by ethical and religious views for consumer demand and labour supply. It concludes by discussing the role of economic theory in the design of institutions and considers the view that the introduction of market incentives in new areas may be harmful to society.

Keywords: Utility and profit maximization; incentives; welfare.

JEL-codes: A13; B40; D01

31 pages, April 22, 2014

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