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Assume everyone has the same preferences. Therefore there would be , for example, no trivial concept of liquidity preference differences etc.

Would the economy still work?

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    $\begingroup$ Are these same preference kept in universal lock step? Or are they forced to be identical at one point in time? Preferences change, sometimes quite rapidly. For example, as I grow hungry, my preference for a given piece of food versus the money it would cost me goes up. After I have eaten, or even ordered, my preferences go down. $\endgroup$ – sharur Dec 20 '19 at 3:05
  • $\begingroup$ Aren't they the same $\endgroup$ – user25255 Dec 20 '19 at 5:20
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Even if everyone's preferences are exactly the same, as long as you leave diminishing marginal utility (e.g. each person would rather have nonzero proportions of apples and bananas rather than exclusively apples or exclusively bananas) and the advantage of division of labor (e.g. a farmer can produce more apples or more bananas if he focuses exclusively on growing one of those rather than trying to grow some of both), there will still be trade because people will want to maximize the value they accumulate by specializing their labor, but possess that value in the form of a wider variety of goods than their (efficiently allocated) labor produces.

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Well yes, many simple general equilibrium models assume representative firm and representative consumers and those models solve. So economy would still work.

Of course, if this would be some switch from heterogeneous agents equilibrium to some homogeneous equilibrium, the unexpected shock would cause recession, but eventually the resources would reallocate and life and economic activity would keep going on...

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  • $\begingroup$ If everyone prefers to save or everyone prefers to invest won't the market fail? $\endgroup$ – user25255 Dec 20 '19 at 1:23
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    $\begingroup$ You could write a model so that everyone likes apples and get no utility from consuming bananas at all. In most models, however, there are trade-offs. Even if everyone prefers apples, they still get some utility from consuming bananas. The market demand and supply will figure out the equilibrium price so that the price of apples is high enough and enough people switch to bananas instead, clearing both markets. $\endgroup$ – Art Dec 20 '19 at 4:28
  • $\begingroup$ How does that work for Capital $\endgroup$ – user25255 Dec 20 '19 at 5:21
  • $\begingroup$ @user25255 well first of all to get the exactly same preference you just need to have the same utility function for example everyone would have the following utility $U=x^0.5y^0.5$. If everyone has the same preference for saving meaning everyone has the same marginal propensity to consume (inverse of it gives you saving rate) everything is fine. If everyone would prefer to save 100% of their income everyone would die from starvation. Of course that would not work but that’s not just having the same preference that’s even one level higher of having no preference to consume and hence live at all $\endgroup$ – 1muflon1 Dec 20 '19 at 9:55

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