Decisions in a simple world.
November 25th, 2009 | Published in Economics idea | 2 Comments
This is a follow up post to my last post on economics in a simple world.
Optimization
Decision making in my simplified apple pie world reduces to optimization. The goal is to get as many apple pies as possible. When faced with any decision, all you have to ask yourself is “will this help me get more pies?”
Some uncertainty
I’m still going to allow for uncertainty in my apple pie world. While you know that apple pie is the goal, you may not know for sure how best to get them. Having said that, the apple pie world isn’t that complicated; there are only farmers and bakers after all. Neither of these professions are especially complex.
Choosing a career
All you have to do is determine if you have a special talent for either farming or baking. If you are better at one than the other, you will likely do better choosing to work to your strength. If you don’t have an advantage in one profession or the other, you would likely decide your profession based on small price fluctuations. If you guess well, you might end up a little better off.
That’s it folks
Other than picking a profession I’m going to assume that there isn’t much more to be thought about. Your aptitude determines your productivity. There isn’t much room for innovation because farming and pie making are old mature professions.
November 26th, 2009 at 12:21 pm (#)
Stephen,
I can think of some other complexities in determining which career to choose:
1. Where is the demand? Even if everyone has a special talent for farming, we can’t all be farmers.
2. Are resources available? Is there farmland if I want to be a farmer? An oven if I want to be a baker?
3. How do I pay for my raw materials – farmland and ovens/electricity? With apple pies? Is there any difference in the investment in apple pie or training time to become a farmer or a baker?
Eric
November 26th, 2009 at 8:29 pm (#)
Eric.
Those are good questions.
1. Perhaps we can start with a barter economy. With only two goods being traded, there isn’t much of a need for money. Bakers trade apple pies for the ingredients used to produce them. They naturally ask for more ingredients than are needed to create the pies they give away because they too want apple pies.
2. For simplicity, we can assume that the population is low. There is no practical limit to the natural resources available.
3. I’m assuming a very low tech production process. Let’s assume that the farmers and bakers are able to make their own tools from scratch. Farmers can create basic farming implements from available resources. Bakers can build ovens out of clay and heat them with wood. The alternative would be to add sectors to the economy that are responsible for creating the tools used by farmers and bakers. I don’t want complexity at this point.
I’m also going to assume that training isn’t an issue. People acquire the basic skills to become farmers AND bakers as they grow up. The reason they can’t do both, perhaps, is that they don’t want to have two sets of tools, one for baking and one for farming.