The Austrian School and Market Equilibrium Theories
Swiss Management Center University (SMC)
November 18, 2012
Two theories prevail when studying and analyzing the economies of markets: the theory of market process (Austrian way) and the theory of market equilibrium. The market process theory adopts human action and subjective interaction as a main variable. The market process theory makes a number of assumptions as the framework of its application: humans choose, the market exists, knowledge is imperfect, and money or production exists. It also explains the role of entrepreneurs in market dynamics. Neo-classical economists follow a different methodology where individual behavior is approached from a rational perspective that assumes maximization of choice. Market players are expected to maximize utility knowing their means and ends. The number of outcomes are restricted and taken into account through probability calculations. The scenarios of outcomes are weighted assuming perfect information. The Austrians disagree with Neo-classical economists on various grounds: mathematical equilibrium approach, interpretation of individual behavior as maximization, assumption of perfect knowledge, and perspective to profit. The different assumptions in the different models of market equilibrium can be considered as adopted boundary limits of controlled scenarios of the more general model of market process.
Number of Pages in PDF File: 7
Keywords: Austrian, market, equilibrium, entrepreneur, neo-classicalworking papers series
Date posted: November 19, 2012
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