Are Market and Equilibrium Prices and Wages Ethical?

Abstract

The income of a producer is determined by the prices received for his products: the sales price.

This sales price should cover all reasonable production costs and at least ‘Living Wages’ for the producer and all workers involved. These production costs also include transport and distribution costs, depreciation and investment costs.

A sales price is not determined by the producer alone; it is determined on the market by supply and demand. A common mistake is to call these prices equilibrium prices. Equilibrium prices however only exist when there is a situation of perfect market conditions, a situation that rarely exists in reality.

In reality, market prices are not equilibrium prices since

• 1. in reality, there is no perfect competition

• 2. import and/or export restrictions, or subsidize certain products

• 3. political interference

• 4. very important: the demand of the poorest is not taken into account in the equilibrium price

Therefore, a paradigm change from the use of prices decided by the market with all its imperfections, to an approach founded on ethics is needed. ‘Ethical’ here is based on Universal Human Rights and implies that any worker receives a decent income for full-time, sustainable work.