The Economic Theory Of Becker And Stigler's Theory

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While at first glance, Becker and Stigler’s theory may seem to remove human nature from the decision making process, it is much more complex than this assumption. Similarly to traditional economic theory, their model is based off of Homo Economicus, or the economic man. Therefore, this theory operates under the premise that all humans are rational individuals with the main goal of maximizing utility. Furthermore, Becker and Stigler add on to classical thought by claiming individuals all share a set of universal preferences that are persistent and not easily subject to change and that utility comes from commodities, not products. With utility maximization from commodities and shared preferences as a central focus, Becker and Stigler believe …show more content…
Since it is assumed we all share lasting preferences and are rational human beings, these resources are what alter the decisions between people as they translate into the form of prices and incomes. Therefore incorporating a humanistic side to the theory that is somewhat overlooked. When we make decisions to maximize utility we do so through the production of commodities. Now, these commodities are not tangible in the sense of a package but the feelings and effects we receive from purchasing market goods. One way to interpret the effect of commodities and better understand them is to analyze what Becker and Stigler call, good and bad addictions. A good addiction results from the production of a commodity whose price drops as more skill is acquired over time, therefore reducing the marginal cost due to an increased efficiency. While on the other hand, bad addictions occur when producing commodities that have an increasing marginal cost as time goes on but relatively inelastic demand, leading to increased production of these negative commodities despite their rising cost. What governs not only these decisions, but also all human behavior in the scope of this theory is price. A combination of …show more content…
This tautological nature is what allows Becker and Stigler to make their grand claim, that this is a unifying framework to understand behavior. Through its basis on preferences as unchanging pillars of decision-making, their theory is able to stand the test of time and account for alterations in fashion and resources. For every choice there is an explanation that relates to utility maximization and fluctuation in prices. Although some may believe that human nature is developed socially and that preferences change over time and are affected by fads and advertising, Becker and Stigler’s theory responds with the idea that those factors affect the knowledge available to consumers. For example, when Anheeuser Busch airs an advertisement in this Super Bowl that ranks as the best ad by USA Today and sales spike, it wasn’t due to the ad changing tastes. The advertisement changed the quantity of information accessible to the consumer, therefore making the price of the commodity produced by purchasing the market good advertised lower. In addition, the concept of shadow costs or simply unknown costs attached to market goods or commodities produced add to the tautology of the theory, as they provide a stop gap or sorts that account for missing costs. Whenever an unknown cost can be incurred, the theory makes room for it in its structure, therefore

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