Question

In: Economics

What are the exchange and allocation paradigm? How do they differ? Under what scenarios is it...

What are the exchange and allocation paradigm? How do they differ? Under what scenarios is it constructive to use an allocation paradigm vs an exchange paradigm in addressing business issues?

Solutions

Expert Solution

Allocation, and, Exchange paradigm

The potential gains from exchange are the driving force of economic activity. They assume that individuals desire a great command over services, and, goods that they pursue these goals intelligently, and, deliberately. These assume that the individuals are purposive, and, greedy. They understand economic outcomes are unintended consequences of the interaction of purposive, and, greedy individuals. These accept the principle of methodological individualism.

Exchange paradigm - trading equilibrium

Allocation Paradigm - Resource allocation based on the Hayekian paradigm

  • First mover advantage
  • Entrepreneurial innovation for those who do not get the first mover advantage


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