Saturday, January 19, 2013

Selected Principles Of Microeconomics

This post presents a series of claims, without argument, references, or empirical evidence.

  1. Raw materials & agricultural products, commodities produced by industry, and services are priced differently by firms producing each in advanced capitalist countries.
    • Undeveloped, industrial, and post-industrial economies systematically vary in which of these three types of commodities they mainly produce.
    • Thus, these economies may differ in their microeconomic and macroeconomic behavior.
    • And even the performance of a single economy may vary among regions in that economy.
  2. The prices and quantities produced of raw materials and agricultural products are mediated by supply and demand, in some sense.
    • These commodities are traded on organized commodity markets.
    • These markets have definite rules for matching bids and asks.
    • Some speculators in these markets are willing to take either side of an exchange.
    • Some firms in these markets are tasked with "making" the market.
  3. The prices of industrial products are administrated, with firms setting a markup over cost.
    • Typically, the ownership of a firm producing industrial commodities is separated from its control.
    • Typically, such a firm operates multiple plants and produces multiple products, often in more than one industry.
    • The allocation of overhead costs among the produced products is a challenge, and is mediated by accounting conventions.
    • Plants typically face constant average variable costs, up to some maximum.
    • Firms in these industries plan plants to operate at some average capacity below this maximum, so as to have room to respond to unforeseen demand.
    • Firms in these industries respond to short-run fluctuations in demand more by varying output than by varying quoted prices.
    • Firms set their markup over cost to generate internal finance for a planned rate of growth.
  4. I should say something about the quantities produced and prices of services here.
    • The concept of dual economies, in which some parts of a modern economy behave like an undeveloped economy, seems particularly appropriate for analyzing firms providing services.
  5. Piero Sraffa's model, suitably modified, provides a framework to analyze how markets for these different kinds of commodities fit together.
    • One modification involves dropping the assumption that the same rate of profits is earned in all industries.
    • The absence of barriers to entry in an industry is the relevant notion of a competitive industry.
    • One might consider how firm reaction functions or old Industrial Organization theory fit in here.


Will said...

Calling Robert Vienneau:

Robert Vienneau said...

Thanks. Magpie added a comment. See also David Ruccio.

Skill Biased Technical Change has always been a stupid idea. It is based on an incoherent neoclassical theory that was rejected by the neoclassical side of the Cambridge Capital Controversy. In other words, it was known to be nonsense when it was first put forward. I do not think Mark Thoma gets neoclassical theory correct, either.

Matias Vernengo and I both had posts at the time of Krugman's posts.