Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Y3 Micro > Lecture 6 - Price Theory > Flashcards

Lecture 6 - Price Theory Flashcards

1
Q

Which 3 concepts have long been intertwined?

A

The concepts of Price, Cost and Value have long been intertwined.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Define cost

A

Cost is what is given up, paid, or sacrificed, to attain a good.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define price

A

Price is what is gained when a good is transferred to another agent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Are cost and price the same thing?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Give 1 reason why price may not equal cost

A

As price can often include the profit margin/mark-up

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Who released “Capital in the 21st Century”?

A

Thomas Piketty (remember there is an exam question on him)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Does price coincide with societal cost?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Name a quote from Thomas Hodgkin about variations in prices

A

“variations in prices have very important results.”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How do variations in prices regulate consumption?

A

By bringing commodities within, or carrying them out of the reach of a certain number of persons

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How did Torrens (1824) define price?

A

Price is the quantity of that particular thing or commodity which is given in order to procure another commodity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

So what does a corn price mean according to Torres (1824)?

A

The quantity of corn which must be parted with, in order to obtain any given quantity of the commodity we want.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What 2 kinds of price are there?

A

Market Price and Natural Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Define market price

A

What we give in order to obtain any commodity by way of exchange, in the market

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Define natural price

A

What we must give in order to obtain the article we want from the great warehouse of nature.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is natural price the same as?

A

The cost of production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are prices relationships between?

A

2 commodities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

When one of the 2 commodities is money, what do we get?

A

The money price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the price of a good, denominated in money, called?

A

The Nominal Price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Why would a nominal price change?

A

Due to a change in the value of either commodity.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Under General Equilibrium Theory, does every economic agent necessarily keep a strictly balanced budget? If so what does this mean?

A

Yes, therefore they maintain along-term equality between the value of their income and expenditure.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Under General Equilibrium Theory what is money?

A

Money is merely an intermediary of exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Under General Equilibrium Theory, is money a means of payment?

A

No

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Are fluctuations in nominal prices important? Why?

A

No, as it is simply an issue of measurement. Only substantial and real price changes are important.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

To somebody who wants to acquire a good, what is the real cost of acquiring it?

A

The real cost is the toil and trouble taken to acquire it.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What is everything worth to the man who owns a good and wants to dispose of it or exchange it for something else?
The toil and trouble which it can save to himself, and which it can impose upon other people.
26
Items bought with money or with goods are purchased with what?
What is bought with money or with goods is purchased by labour, as much as what we acquire by the toil of our own body.
27
What does Money Illusion often turn into?
Mercantilism
28
Which classic economist claimed we had solved the production problem?
J.S. Mill (1869)
29
Did Classical Economists believe that scarcity was a major issue? What was true about scarcity?
No, it tended to be solved with major innovations.
30
What was the creation myth of Neoclassical Economics?
The Marginalist Revolution of 1871 is portrayed as the legitimate scientific transformation of Economics resulting from a series of historical events. 
31
Give a Marginalist Value statement from John Rooke, as well as the year in which he said it:
“It must be the last and finite portion of that commodity added to the general stock, which regulates the value" (Rooke, 1820)
32
Who first stated that MC = MR?
John Rooke (1824)
33
Who first spoke about diminishing marginal utility? What did he say?
William Thompson in 1824 stated “Successive portions of wealth diminish in their power of producing happiness when added to the same individual’s share”
34
What happened as a result of the marginalist revolution?
Pure exchange models were developed that shifted the explanation of price away from the classical focus on production to the neoclassical focus on utility and relative scarcity.
35
What happened to Smith's diamond water paradox as a result of the marginalist revolution?
Smith’s diamond-water paradox was no longer a puzzle, since price was explained as proportional to marginal utility, which depended on scarcity.
36
Is the relationship between price and scarcity one way?
No, scarcity can cause high prices, but high prices can also cause exclusivity. The relationship should be viewed as bidirectional in terms of causality
37
What did Neoclassical Capital Theory do?
Extended the general principle of relative scarcity to explain all prices, including factor prices.
38
What is a a one-commodity Samuelson/Solow/Swan aggregate production function model?
Q = ƒ(K, L)
39
List the 4 usual assumptions of the Simple Model.
-Exogenously given resources and technology -Constant returns to scale -Diminishing marginal productivity -Competitive equilibrium
40
What does this simple model exhibit? Who named these as such as when?
This simple model exhibits what Samuelson (1962) called three key “parables”
41
What is Parable 1, and what is it determined by?
The real return on capital (i.e. the rate of interest) and is determined by the technical properties of the diminishing marginal productivity of capital
42
What is Parable 2?
↑K→↓MPK →↓ rate of interest. The same inverse relation with the rate of interest holds for the capital/output ratio (ie ↑K→ ↓output) & sustainable levels of consumption per head (ie ↑population→ ↓consumption per head).
43
What is Parable 3?
- The distribution of income between labourers and capitalists is explained by relative factor scarcities/supplies and marginal products. - The price of capital services (the rate of interest) is determined by the relative scarcity and marginal productivity of aggregate capital, - The price of labour services (the wage rate) is determined by the relative scarcity and marginal productivity of labour (L).
44
What do the three parables of this one-commodity model depend on?
A physical conception of capital (and labour) for their one-way causation
45
In which models can there be problems? Why? What is a common solution to this?
- There are problems in models with heterogeneous capital goods. - Heterogeneous capital goods cannot be measured and aggregated in physical units; - Capital valuation is used, as Wicksell (1911) explained
46
Give 2 ways in which the value of capital can be measured
-The cost of production, which takes time -The present value of the future output stream they produce
47
What is true about either methods of valuing capital?
In either case, since the measure involves time, it presumes a rate of interest, in the simple model, this is determined in a one-way manner by the quantity of capital.
48
What kind of economist was Piero Sraffa?
He was a classical economist
49
Sraffa's 1960 book demonstrated the significance of what?
Reswitching and Capital-reversing
50
What was Sraffa's book we are focussing on called, and when was it written?
The Production of Commodities by Means of Commodities (1960)
51
What key question did Sraffa;s work pose?
“What is the good of a quantity of capital . . . which, since it depends on the rate of interest, cannot be used for its traditional purpose . . . to determine the rate of interest [?]"
52
The Cambridge capital theory controversies of the 1950s to 1970s revolved around a series of still-unresolved controversies over which three deep issues?
-Explaining and justifying the return to capital; - Due to path dependence, equilibrium is not an outcome of an economic process and therefore an inadequate tool for analysing accumulation & growth; - The role of ideology and vision in fuelling controversy when results of simple models are not robust.
53
Explain the Arrow-Debreu solution
- Intertemporal General Equilibrium notion - One might have a multitude of interest rates - A structure of interest rates associated with different capital goods, rather than financial ones, even if you do have monetary rates too - This is what the mainstream did, which changed the notion of equilibrium, - And gave up the notion of a uniform rate of profit.
54
What can a multitude of interest rates also be known as?
The term structure
55
Have any economists ever admitted their errors?
Yes, in an updated version of his book, Samuelson purged his errors, and in one paper, opened it up with "We wish to make it clear for the record that the non-reswitching theorem associated with us is definitely false.” (Levhari and Samuelson 1966).
56
Is neo-classical economics correct?
No
57
What is an issue with macroeconomic textbooks?
They discuss Capital as if it were a well-defined concept, which it is not
58
What did (Burmeister, 2000) say?
The problems of heterogeneous capital goods have also been ignored in the ‘rational expectations revolution’ and in virtually all econometric work."
59
Which famous economist did Sraffa work with at Cambridge?
Keynes
60
Sraffa edited which piece of work disagreeing with neo-classical economics?
Works & Correspondence of David Ricardo (1951-1973)
61
Which Marx issue did Sraffa focus on?
The Transformation Problem, turning values into prices
62
What did Sraffa initiate?
The Capital Controversy

Y3 Micro (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions