Fallacy of Composition: Their So-called Budget Constraint
All the celebrated ideas of indifference curves, isoquants and production possibility frontiers are associated directly or indirectly with a “ budget constraint .” The budget may in terms of a good, money or two production factors. Interestingly, however, the budget constraint is of no use either in the market or in the economy. More specifically, the constraint is irrelevant to the market while redundant, or “nominal” as used in macroeconomics, in the economy. No Constraint to the Market. To begin, the market is imagined for a particular product traded in a bounded community over a defined period of accounting. Otherwise, we cannot think of the equilibrium price ( p* ) and the quantity traded ( q* ), much less naming them. By nature, the product is merely one of indefinitely many goods and services wanted by t...