EC 200-B01

*** handout ***

stock price: based on flow of future money

efficient theory of stock market pricing (random walk)

  1. many buyers & sellers (almost perfectly informed)
  2. what would cause the price to change?
  3. supply & demand, based upon new information

Adam Smith, Wealth of Nations (1776)

pre-Smith, mercantile system: the purpose of the economy is to build a strong state (economy serves interests of the state)

economy is meant to serve the welfare of the people (maximize the utility of the populace)

laissez-faire capitalism: minimal govt regulation

Positive: people do seek to maximize their utility
normative: people should seek to maximize their utility

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