Summary |
The analysis of optimum choice from among a set of alternatives is a feature of most economic problems. Models of command economies naturally introduce an overall criterion function to be maximized bearing in mind the resource availability and technological possibilities. Models of market economies find it useful to formulate the behaviour of individual agents in an optimum choice framework, with each consumer maximizing utility constrained by his budget and each producer maximizing the net worth of his enterprise given its production possibilities. Between the polar cases we have mixed economies in which the government can manipulate some policy instruments but cannot achieve complete command over resource allocation. Such economies involve two stages of optimization: given each set of government policies, the other agents make their own best choices, and in considering its optimum policy choice the government has to bear in mind these responses of private agents as well as the overall resources and technology constraints.
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