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.