Chapter 2 Liquidity Liquidity and the closely related notion of flexibility are intuitively understood by economists and others. There is the ease of conversion of an asset at a particular date into something else by means of a market transaction. It is connected with the idea that liquidity increases the set of choices at some date so that the liquidity of for instance a portfolio depends on the date specified for conversion. This chapter explores the way purely search theoretic approach that leads to a liquidity ordering of assets by considering differences in the expected time to sell an asset under an optimum search policy is integrated into present equilibrium theories of an economy. Liquidity considerations are used to account for missing markets which are now known to have more serious consequences for received theory than once thought. Search theory suggests imperfect markets and so has considerable implications for competitive theory. Ideally it is combined with the theory of bargaining which in turn leads to the modification of search theory itself.