Trade Maximization Principle: Market Processes, Supply and Demand Laws, and Equilibrium States

Abstract

In this paper we have used probability economics as a tool of unification of the market process concept of Austrian economics and the supply and demand laws and equilibrium state concepts of neoclassical economics. The new agent-based trade maximization principle has been proposed to serve as a connection link among of all these three concepts. In particular, we have shown that it is namely the market process that underlies the supply and demand laws mechanisms and leads the market to the equilibrium state. It is namely the desire of market agents to maximize the market trade is the driver of this transition market process. So, we have shown that the trade maximization principle can be regarded as one of the possible mathematical representations of this driver, and thereby the well-known invisible hand of the market. In the end, we have obtained a set of mathematical formulas that describe in detail the inverse relationships between economic efficiencies and economic uncertainties (the uncertainty law) and the agent structure of the equilibrium states of the many-agent, many-good markets. They also reveal the main features of the market transition process to these states, for instance the narrowing effect and the uncertainty relation for supply and demand. This paper is addressed to all those who are interested in the background of economics, foremost in the axiomatic basis of modern economic theory.