18 MULTIPLE PURPOSE RIVER DEVELOPMENT 



presenting a first impression of the principles involved in "econo- 

 mizing." This analog is referred to as the economists' competitive 

 model, and it represents a convenient starting point in under- 

 standing the forces at work in a competitive market economy.^ 

 Use of the model as an expository device does not imply that it 

 faithfully represents the workings of the economic system. It helps, 

 however, in understanding the conditions which represent economic 

 efficiency, economic utilization of society's resources, etc., and 

 thereby provides a basis for finally defining more realistic criteria 

 for evaluating the efficiency of alternative undertakings. 



Central to the framework of the model is the underlying belief 

 that in democratic societies the economy and its institutions should 

 serve the needs of its members, and that the members are them- 

 selves best qualified to determine their needs and desires. This is 

 the rationale behind the phrase "consumer sovereignty." The 

 efficiency with which an economy operates in a democratic society, 

 in fact, is evaluated partly in terms of how well the system permits 

 the organization of production and distribution to conform with 

 individual preferences. This assumes that individuals have con- 

 sistent preferences, and behave rationally in indulging them. That 

 is, given a choice, the alternative yielding the greater satisfaction 

 for consumers or profits for producers will be consistently preferred 

 over the alternative yielding lesser satisfaction or profit. For 

 example, if two market baskets contained the same number of all 

 items except one, an individual is assumed to select the basket 

 with the larger number of the single item. This, of course, mi.^ht 

 not be true if his rate of consumption of the item had reached a 

 point of satiety. And this possibility suggests an empirical elem^; t 

 of the model: that consumption of successive units of any item 

 during a specified consumption period yield a diminishing 

 marginal satisfaction. 



Finally, in this model, markets are assumed to be perfectly com- 



resource allocation and others who may be impatient with detail, the presenta- 

 tion is summarized even more briefly at the end of this section (pages 40 41). 

 The body of the section, therefore, may be skipped without loss of continuity 

 by those who prefer to do so. 



* Our schematic presentation of the competitive model is an overly simple 

 summary of the detail in which the model can be elaborated. For one of the 

 best elaborated treatments of the competitive model, see Tibor Scitovsky, Welfare 

 and Competition (Chicago: Richard D. Irwin, Inc., 1951), pp. 3-188. 



