Invisible hand at consumption-leisure production possibility frontier: the allocation of time between goods and services under wage and price dispersions

Sergey Malakhov

MPRA Paper from University Library of Munich, Germany

Abstract: If the equilibrium price is equal to the lowest willingness to pay of consumers with zero search costs, it accumulates under price dispersion the willingness to sell of consumers with positive search costs. The searcher buys optimally at a low price, which equalizes marginal costs of his search with its marginal benefit and maximizes his consumption-leisure utility but now with respect to the equilibrium price. The suboptimal satisficing purchases represent corner solutions; consumers either buy optimally or quit the market. The producer meets the consumer with a price, like he knows in advance his willingness to pay and the time spent on search. The consumption-leisure production possibility frontier optimally allocates his time between production and delivery; it determines not only the quantity to be purchased and the price, but also the meeting point, where the producer stops consumer’s search and sells him goods with leisure. Being unaware of how much the consumer has spent on labor and search, the producer unintentionally optimizes his consumption-leisure choice.

Keywords: invisible hand; consumption-leisure choice; production possibility frontier; search; price dispersion (search for similar items in EconPapers)
JEL-codes: D11 D83 (search for similar items in EconPapers)
Date: 2020-12-01
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/104455/1/MPRA_paper_104455.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/107967/1/MPRA_paper_104455.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/107967/8/MPRA_paper_107967.pdf revised version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:104455

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().