Abstract
In previous chapters, the notion of price was introduced and understood as an empirical estimate of the value of a product. The price is not an intrinsic characteristic of the product as a thing, but it appears as a result of a bilateral assessment: the producer estimates the efforts and expenses necessary to create a thing, and the consumer estimates the usefulness of that thing for him. The price emerges as a result of the agreement between the producer and the consumer, and it thus appears connected with features of behaviour of economic agents. However, this does not mean that price is a subjective quantity; the price of a product exceeds expenses (cost) of manufacture for an amount which the consumer can pay willingly, so that the attribution of value of a set of products to the production factors is not unreasonable. The relationship between producers and consumers in a process of exchange of products is a market of products. The theory of prices is a theory of the market. In this chapter, the theory of prices is considered for a simple scheme that can be described in macroeconomic terms.
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Notes
- 1.
Mark Blaug [6, p. 17] paradoxically evaluates that ‘The result of all this is that we now understand almost less of how actual markets work than did Adam Smith or even Léon Walras.’
- 2.
Economic equilibrium assumes that all macroeconomic variables which define the economic system are constant, aside from fluctuations. From the point of view of thermodynamics, it is a steady-state situation, where the processes of production and consumption of products are occurring. Economic equilibrium is an idealisation of reality, which has been emphasised many times. However, this concept appears to be a very useful idealisation, just like thermodynamic equilibrium or a steady-state situation in physics.
- 3.
Economic equilibrium assumes that all macroeconomic variables which define an economic system are constant, aside from fluctuations. It recalls the definition of equilibrium in thermodynamics: all thermodynamic variables are constant on average, though there is movement of constituent particles of the thermodynamic system. Similarly, the material constituents of an economic system at equilibrium are not in thermodynamic equilibrium: there are processes of production and consumption of products. Economic equilibrium is an idealisation of reality, which has been stressed many times [7]; nevertheless, it is a very useful idealisation, like that of thermodynamic equilibrium in physics.
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Pokrovskii, V.N. (2012). Mechanism of Social Estimation of Value. In: Econodynamics. New Economic Windows. Springer, Dordrecht. https://doi.org/10.1007/978-94-007-2096-1_9
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