Chap4microF11

Chap4microF11 - The Question to be Addressed h What...

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The Question to be Addressed… h What Determines the Price of the Good?
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An Answer from David Ricardo and Karl Marx… n The Labor Theory of Value - The price of a good is determined by the cost of production, and the cost of production is dictated by the quantity and quality of labor utilized. n What of the other factors of production? Capital: Capital is simply stored up labor. Land: Ricardo argued that the price of corn determined the price of land, rather than the price of land determining the price of corn. In other words, the price of land is price determined, not price determining. What about demand? In the long-run, assuming competition, price will equal the cost of production. This comes directly from the work of Adam Smith
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Karl Marx wished to show that even if capitalism worked exactly as Ricardo believed, capitalism was still a very poor economic system. n Consequently, Marx utilized the labor theory of value to explain prices. n Given this explanation, Marx offered the following argument: If the value of labor determines value, and value mostly is given to the owners of capital, is it not the case that labor is exploited?
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1870s, three different writers – Stanley Jevons, Leon Walras, Carl Menger – offered a different answer to “what determines prices?” n Utility - the satisfaction one receives from a good.
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This note was uploaded on 09/21/2011 for the course ECON 33974 taught by Professor Barbaraross during the Spring '09 term at Hawaii.

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Chap4microF11 - The Question to be Addressed h What...

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