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$20 bills don't lie in plain view for very long, and every sale is also a purchase.) When one sets out to
make a formal mathematical model, these rough principles usually become the more exact ideas of
maximization (of something) and equilibrium (in some sense). It is, however, a good idea always to
keep the looser statement in mind, for two opposing reasons to remind yourself not to take any particular
mathematical formalization too seriously, but also to remind yourself that the basic principles of
mainstream economics are not at all silly or unreasonable.
What we do when we construct an economic model is to try to use those two principles to cut through
the complexities of a situation. And the remarkable thing is how often that effort succeeds. Thinking
carefully about how self-interested individuals would act in a particular situation, and how these actions
would interact, can often produce powerful and surprising insights.
One cannot give a better example than the von Thünen model. To someone innocent of that model, the
question of how land should be allocated among a variety of crops with different transportation costs
and yields might seem a very complicated problem, whose solution requires a great deal of knowledge
about the particulars. The question of how that land would actually be allocated in the marketplace
might seem an entirely different problem, one which would require some historical and institutional
knowledge of the particular society under discussion. And as for the question of how much the owners
of land receive well, that's surely a matter of power and class struggle, isn't it? Yet the basic principles of
economics tell us that there is an unexpected order in the outcome, which is quite independent of the
details. Obvious opportunities will not go unexploited: a farmer will bid away land from another
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