Lecture 7 - Sraffien Price Determiantion

Question 1

Does neoclassical economics believe that people can behave emotionally?

Answer 1

No, only rationally. so they won’t behave for religious reasons.

Question 2

How relevant is money in determining prices?

Answer 2

Money has nothing to do with the determination of prices.

Question 3

Do economists in the “post-Keynesian” school reject or accept scarcity as a fundamental truth?

Answer 3

Economists in the “post-Keynesian” school reject scarcity as a fundamental truth.
In their view, economies typically have unemployed resources

Question 4

In Example A of Production for Subsistence, how many commodities and industries are there?

Answer 4

• Corn & Iron
• Corn industry & Iron industry

Question 5

What is the iron law of wages?

Answer 5

Workers of wages will always be at subsistence level (ie the minimum required by them to survive)

Question 6

If the corn industry needs 12 tons of Iron, and the Iron industry needs 120 quarts of corn, what does this imply about the relative price of each commodity?

Answer 6

1 ton of Iron = 10 quarts of Corn

Question 7

In Example A of Production for Subsistence, what happens after production/

Answer 7

Commodities are redistributed so production can re-start

Question 8

In Example B of Production for Subsistence, how many commodities and industries are there?

Answer 8

• Corn, Iron and Pigs
• Corn industry, Iron industry and Pig industry

Question 9

In Example B of Production for Subsistence is there a surplus?

Answer 9

No

Question 10

In Example B of Production for Subsistence, what are the prices of each good?

Answer 10

10 qr. corn = 1 ton iron = 2 pigs

Question 11

How does technology determine the price of each commodity?

Answer 11

Technology determines the price of each commodity, because it determines how much corn, iron, and pigs each industry needs

Question 12

Why did Ricardo say that you cannot use money to quantify prices?

Answer 12

As money is a commodity which changes in value.

Question 13

How can you measure prices then, according to Ricardo?

Answer 13

Set a commodity that does not change in value, to the value of one.

Question 14

If there is a surplus, ie more is produced than used as inputs, what should happen to it?

Answer 14

The surplus should be distributed

Question 15

What do we assume about the output’s production?

Answer 15

Should be proportional to the means of production (ie inputs)

Question 16

Formulaically, what represents the extent to which total output is more than total input? (ie the surplus)

Answer 16

(1+r)

Question 17

In a case where more corn is produced than required, but there is no surplus, what has happened to the productivity of the iron industry. What about to the value of iron industry?

Answer 17

Iron industry’s productivity is the same, but the value of iron industry has risen, as now it can produce more corn.

Question 18

What is true about the distribution of profit rate across industries when there is a surplus?

Answer 18

Profit rates are proportional to the inputs of each industry.

Question 19

What are luxury goods?

Answer 19

• Not used as productive commodity
• Do not enter price determination
• Passive role in production

Question 20

What 3 kinds of goods are there?

Answer 20

• Luxury goods
• Basic goods
• Non-basic goods

Question 21

Name 3 bits of information about basic goods

Answer 21

-Enters production of all goods (directly or indirectly).
-We assume that any price system contains at least one Basic Good.
-There is an interrelationship between Basic Good’s price and price of its means of production

Question 22

In early classical economic theory, when were wages paid, and why? What was this theory called?

Answer 22

-Assume that as wages were paid out of pre-existing capital, which was fixed,
-That as this was the sum total that could be paid out as wages
-That wages amounted to this sum divided by the number of workers actually labouring.
- This theory was called “Naïve Productivity Theory”

Question 23

What instead realistic about wages?

Answer 23

But in reality, wages are usually paid in arrears and are a distributive factor of production.

Question 24

Thomas Hodgskin’s 1825 book – Labour Defended, was effectively the proof of what?

Answer 24

That wages were paid after production, and not before.

Question 25

Why isn’t capital means of production?

Answer 25

Because since the 18th century it has been financed through credit, largely by banks!

Question 26

What is Wage Fund Theory?

Answer 26

-Was an early idea within Classical Economics assuming that as wages were paid out of pre-existing capital, which was fixed
-That as this was the sum total that could be paid out as wages
-That wages amounted to this sum divided by the number of workers actually labouring

Question 27

Are wages a distributive factor of production?

Answer 27

Yes