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335 appendix: the application of market theory to multi-period planning This book has outlined the process by which decisions of individual market participants interact and are brought into mutual coordination . Through the price system, the owners of resources are attracted to sell their respective resources to entrepreneurs whose production plans are designed to dovetail with the consumption plans being made by consumers. The presentation of the analysis, thus far, implied that the masses of decisions involved in the process of plan-interaction were made solely with reference to a single short period of time. Resource owners were viewed as deciding each day on the quantity of the day’s resource endowments to offer for sale and the prices to ask. Consumers were viewed as deciding each day on the best pattern of income allocation to seek to achieve. Entrepreneurs were seen as deciding each day on what to produce , and what particular combination of resources to employ for the production of a given product. The market process was seen as bringing about revisions, each day, in the plans being made for that day as compared with those made for the preceding day. Once the nature of the market process is understood, it becomes possible to extend the analysis explicitly to cover the interaction of plans made (at any one time) for any number of future time periods. A consumer may make plans for the allocation of his income, not merely the income for the current week, but also the incomes of any number of future weeks. In the summer he may make plans to buy sports clothes now, and at the same time he may plan to set aside enough of his annual income to buy winter clothes several months later. Resource owners may plan to sell some of their currently endowed resources now and next year to sell a different quantity out of the resources they expect to be endowed with next year. In each of these examples a single unified plan is made to cover a number of periods of time. A decision within each of these plans, with respect to any one of the periods, is a part of the whole multi-period plan—the decision made for one period fits in with the decisions made for the other periods. (This is of course completely analogous to the situation with respect to a plan made for only a single period, say a particular month. Plans for the quantity of food to be bought this month are coordinated with, and fit into, plans made to buy clothing during the same month.) In reality, of course, all planning is multi-period planning in the sense that the component parts of any plan are related to one another in some 336 appendix sort of time sequence. One does not plan, in any one month, to buy or consume both food and clothing perfectly simultaneously. Even plans made for only the next half-hour specify the sequence of activities. However , it has been convenient to ignore this aspect of plans thus far in this book. The discussion assumed that within each period activities were being planned for, the sequence of activities was of no importance—precisely as if the length of the time period were compressed into a single moment in time. In this appendix we consider in barest outline the consequences , for the analysis of the market process, of the relaxation of this assumption. We wish to take notice of the kinds of alternatives facing the individual resource owner-consumer who plans for several successive periods of time. We wish to explore the consequences of the interaction, in the market, of the plans of numerous such individuals. In addition, we will consider the consequences of the fact that production planning too, involves planning for a number of successive periods in the future. In particular, we will notice the market consequences of multi-period production planning. multi-period decisions in the pure exchange economy The analysis of individual multi-period plans and of the interaction in the market of numerous individual plans of this kind can be demonstrated most simply by the case of the pure exchange economy discussed in Chapter 7. It will be recalled that in such an economy each of the participants finds himself endowed each day with some bundle of endowed commodities which he is free to consume himself or to exchange in the market for other commodities. No production is possible in such an economy...

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