The Tilly Eight Assumptions and Reality Flashcards

Vocabulary flashcards contrasting the eight free-market assumptions with economic realities based on Chris Tilly's framework.

Assumption One: No Market Power(1)

No individual buyer or seller, nor any group of buyers or sellers, has the power to affect the market-wide level of prices, wages, or profits.

Reality One: Market Power Centers

The economic reality that our economy is dotted with centers of market power, from large corporations to unions, where employers hold a bargaining edge due to the threat of unemployment.

Assumption Two: No Economies of Scale(1)

Small plants can produce goods as cheaply as large ones.

Reality Two: Cost Advantage of Scale

The economic reality that in fields like mass-production industry, transportation, communications, and agriculture, large producers enjoy a cost advantage that limits competition.

Assumption Three: Perfect Information About the Present(3)

The assumption that buyers and sellers know everything there is to know about the goods being exchanged and are aware of the wishes of every other potential buyer and seller in the market.

Reality Three: Lemons and Information Imperfection

The economic reality that the world is full of 'lemons' (goods about which buyers are inadequately informed) and that sellers get stuck with surpluses while willing buyers cannot find products because people are not mind-readers.

Assumption Four: Perfect Information About the Future(3)

Contracts between buyers and sellers cover every possible future eventuality.

Reality Four: Future Uncertainty

The economic reality that uncertainty clouds the future of any economy and futures markets are limited.

Assumption Five: 'You Only Get What You Pay For'(2)

Nobody can impose a cost on somebody else, nor obtain a benefit from them, without paying.

Reality Five: Externalities and Public Goods

The economic reality that positive and negative externalities are pervasive, allowing polluters to impose costs without paying and allowing everyone to benefit from public goods (like parks or road maintenance) regardless of payment.

Assumption Six: Price is a Proxy for Pleasure(2)

The price of a given commodity will represent the quality, desirability, and/or utility derived from the consumption of the commodity.

Reality Six: Conspicuous Consumption

The phenomenon identified by Veblen where 'snob effects' and status-driven consumption distort commodity prices from their underlying utility.

Assumption Seven: Self-Interest Only(2)

In economic matters, each person cares only about his or her own level of well-being.

Reality Seven: Non-Self-Interested Factors

The economic reality that solidarity, jealousy, and love for one's family violate the pure self-interest assumption.

Assumption Eight: No Joint Production(1)

Each production process yields only one product.

Reality Eight: Joint Production in Service Firms

The economic reality that even in an age of specialization, large service firms such as hospitals or universities produce a variety of different services using the same resources.