Tuesday, April 07, 2015


Jundalisay (see Lost Legacy, Saturday 4 April) posts on Socioeconomic science HERE
Here is an interesting Q & A exercise contrasting Socioeconomics answers to a supply and demand question and answer from Mankiw’s big selling textbook, “Principles of Economics”.
Mainstream micro-economics teachers may like to comment.


Blogger Paul Walker said...

For a start do you not have to ask questions about the idea of the Natural Price. From what I remember of this stuff D P O'Brien (I think) makes the point that it is little more than Marsahall's long run normal price. If so, can we not think of what we have here as being a movement from a short run equilibrium to a long run equilibrium. I don't see why anyone would have a problem with this. Then there is the issue of the natural price itself. Smith relies on a cost of production theory of value (which has its problems), at least for the long run. Smith justifies the rejection of utility by reference to the diamond/water paradox but Smith himself "solved" the problem in his "Lectures" using a subjective theory of value and even though utility is dismissed from the long run determination of value it is utilised in Smith's short run analysis of value. Why the change? Why did Smith replace the subjective value theory of Pufendorf, Smith's teacher Hutcheson, and Hutcheson's teacher Carmichael with a cost of production theory in WN?

Also we are told

"In economics however, the demands of society are manipulated to meet the produce of business and so infinitely high prices are possible."

Infinitely high prices?!! Seriously?

Even with an totally inelastic supply curve why would the maximum willingness to pay be infinite?


"demands of society are manipulated to meet the produce of business"

Then how is it that firms fail? I don't see how they can fail if they can manipulate the demands of society.

Also I sure no one really believes that goods have perfectly inelastic demands. It is just an extreme case that can be used to test a student's understanding elasticity.

What does Say's Law have to do with this. Elasticity is a microeconomic idea, Say's Law is a macroeconomic issue. I'm not sure I see the relationship.

5:12 pm  
Blogger Unknown said...

For a start do you not have to ask questions about the idea of the Natural Price..
I'll explain natural pricing in future posts. The basic idea is that Smith properly saw utility as the effect of action/trade/existence and not its cause. On the other hand, Say, Mill, Jevons, Menger, Marshall, Samuelson, saw utility as the cause. This difference in metaphysical foundation alone leads to very different economic models and systems.

Infinitely high prices?!! Seriously?

Prices are subjective / relative. To most normal people, $1 googol is closer to an infnitely high price than $1 million. But to a beggar, $1 million may be his concept of an infinitely high unreachable price and $1 googol or even $1 trillion doesn't exist because his mind has no reason to conceive it. An example of demand manipulation to create infinitely high prices is in healthcare, where only expensive treatments are peddled which may be of an infinitely high cost to the very poor and so they just choose die.

What does Say's Law have to do with this..Say's Law is a macroeconomic issue

I mentioned Say's Law as the clear advocacy on Production which in turn is the basis for the upward sloping supply curve. "the more numerous are the producers and the more various their productions..the more profitable are they to the producers." Smith and Hume would argue the opposite. Chapter 15 opens with a problem about micro business sales: "their difficulty lies..in the disposal of commodities". To this Say's solution was to keep producing, sell at barter, and get government help: "it is production which opens a demand for products" and "we have seen that production alone, furnishes those means. Thus, it is the aim of good government to stimulate production".

12:21 pm  

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