As mathematics penetrated economic analysis during the nineteenth century, a structural, static, rather than a behavioral, dynamic view of enterprises and of markets became widespread. This viewpoint reduced the entrepreneurs to the level of arithmeticians and eliminated all social and cultural context. The viewpoint presented here restores the balance and shows how to understand numerous facets of the behavior of enterprises by looking at the entrepreneurs and other decision makers behind them.

What is a “market”?

One of the cornerstones of economic analysis is the concept of “the market” within which demand and supply curves are drawn and the equilibrium price, to which a firm in a competitive industry adjusts itself, is calculated. The definition of the market involves two steps: The first is to identify the purchasers, and the second to identify the group of sellers who are or could potentially serve these purchasers. The output, that is, the product together with its good substitutes, defines the relevant market.