Externalities With Value

Our accepted model provides us with a free market – one that is omniscient and omnipresent – that allocates resources, goods and services. Neoclassical economists generally assume that when a consumer (that’s you – got to love that label, huh?) makes a decision, he/she does so with all the information required.

When you buy those pants, neoclassical economists assume that you take into account not only the price, but the material the pants are made from, its scarcity, environmental damage, labor associated with its creation, et cetera when you decide to purchase them. In this way the market is perfect at managing scarcity. We all know that reality is far from this picture, however; consumers make decisions with limited information and often without consideration of the far-reaching effects and “externalities.”

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