Although the flow of production in an economic system travels from higher level producers, to lower level producers, ultimately to consumers, the flow of influence actually runs in the opposite direction—from consumers to producers. Prices throughout the structure of production, for example, reflect the preferences of consumers; not the "costs" of producers.
Graphic Model of
Small Complex Market
To demonstrate the flow of this influence I have presented a model that shows the complex connections in a simple market.
The presentation (using Prezi) steps through
the model created in PersonalBrain (no longer used). It should give you a sense of the complexity of even a small market. This presentation guides you through the model step by step. You should view it first.
Most descriptions of markets overlook two very important concepts:
- The complexity of markets.
- Costs develop from the consumer backwards through the structure of production.
How many steps from the buyer of an aluminum framed bicycle to the aluminum mine? How many people interact with that bike buyer and the businesses that supply him?
This model does not pretend to give a definitive answer to these questions, but it should give you new insights into the complexity of even small markets and the manner in which all producers depend on consumers to buy their products and, thereby, send price signals throughout the market.