Unpublished Paper
1 Models of Trade in a Monetary Economy with the Help of Graph Theory
(2021)
Abstract
Simple examples illustrate the importance of 3-circuits in economic transactions. If the commodity in a trade is indivisible, such as a house, then the buyer and seller can bargain only over the price since the quantity is given. The seller sends an offer to a broker, often the agent of a bank, who sends it to the potential buyer. A potential buyer who rejects the offer sends a bid to the broker who sends it to the seller. This continues either until they agree on a price, or the process stops because it reaches predetermined maximum number of rounds by prior agreement. An auction, purchase of a car, or an expensive durable such as a grand piano illustrate this type of transaction. The third party, the broker, the passive intermediary, is always present in these transactions in a monetary economy.
The standard economic theory of demand assumes divisible commodities. For example, in an actual economy it would apply to groceries that post prices on the items it sells that are available in any amount by the choice of a buyer. Certain popular items are on sale, but posted prices of most items, numbering in the thousands, are not often changed. It is transaction cost, not monopoly power, that explains this. Candidates for sales are the often bought items. It is best to regard them as a tool of the grocer to compensate buyers for their cost of going to the grocery store.
On an organized exchange neither price nor quantity is given. Both are variables in bilateral trades by members of the exchange.
This essay focuses on trade of an indivisible object. A circuit model presents a wide variety of arrangements in graphs using triangles
Keywords
- Monetary Economy,
- Trade Models,
- Durables,
- Indivisible
Disciplines
Publication Date
Fall December 5, 2021
Citation Information
Cooperative Games