ECON BC 3041x Lecture Notes - Lecture 9: Market Failure, Effective Demand, Factor Price
13 Oct 2016
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P. 37: command over labor: equal value (sacrifice of work, boss commanding workers in a factory. Contract between employer and employee: nominal vs. real wage. Real wage has to be greater than subsistence. No property in capital (land: civil- Mutual dependence: between workers, capitalists, and landlords. Tension/struggle over allocation of wages: alternative theory of price (or value): diamond-water paradox. Price must be greater than the original cost. Long-run supply price = (cid:862)unit cost of production(cid:863) Includes an average/normal rate of return to the capitalists. Includes a normal/natural level of wages and rents. Market mechanism (chapter 7: supply will always satisfy the demand. No legislative or policy intervention: wine vs. corn vs. Current supply and demand conditions (equilibrium price) Effectual demand vs. absolute demand: effectual demand is backed by purchasing power. Ability to purchase: absolute demand is aspirational demand, effectual demand is the demand when the price of the good is equal to its natural price.
