Allocations imposed by force

5.6 of The Economy 1.0 & The Economy #3

Given that Bruno has an ‘accessory’ and can order Angela around, what will his logic look like?

-For any hours worked by Angela, she will produce the output showcases by her feasible frontier

-But she needs to consume an amount such that it satisfies her biological survival constraint so that she doesn’t die

-Thus, I will benefit the most by finding the hours worked by Angela that produce the biggest difference between her production and her biological needs. Cause that is for me…

Given this combination, why is Bruno not maximising his economic rent?

-The problem with this combination is that the MRS ≠ MRT.

-Relevant because, at 8 hours of work, the MRS of the constraint is less than the MRT of the frontier. Meaning that there is excess free time.

-Thus, Bruno maximises his rent when Angela’s hours of free time are set such that MRS = MRT, because the vertical distance between the two curves is the greatest here, meaning Bruno’s share is largest here.

If we now see Bruno lose his ‘accessory’ and rather only just owns the land Angela farms, what can we see expect to change?

-The amount of grain Bruno gains may shift, as now only the extent of his power matters

-Remember, people voluntarily interacting do so because they expect the outcome to be better than the reservation option, meaning they get economic rents. So Bruno needs to factor a whole new force into the mix now.

What does the joint surplus infer?

-Sum of the economic rents of all involved in an interaction