Key Concepts in Economic Theory: Value, Labor, and Market Dynamics
Key Concepts in Economic Theory: Value, Labor, and Market Dynamics
1. Surplus Value and Socialist Economic Doctrine
Goodwill is the value of unpaid work that the employee creates, exceeding the value of their workforce, and appropriated by the capitalist for free. Surplus value is the value that the unpaid work of the employee creates, exceeding the value of their workforce, and appropriated by the capitalist for free. The concept of surplus value aligns with the socialist economic doctrine, as represented by Karl Marx. He held the view that the system of free enterprise capitalism contains the seeds of its own destruction. This led to the development of the theory of value, whereby the value of a commodity is determined by the amount of labor applied to its production.
2. Neoclassical Economics and Rational Behavior
This is the term used in the neoclassical school of economic behavior to describe the modern human. This theoretical representation behaves rationally in response to economic stimuli, being able to adequately process the information before it and act accordingly.
3. The Importance of Labor in Production
Labor is probably the most important factor of production. Without the participation of human effort, the land factor would not yield its fruits (at least in regard to the fruits that can be considered scarce, which are important from an economic point of view). The capital factor could not exist since it involves the incorporation of human effort to “produce” a commodity that in itself cannot directly satisfy a human need.
4. Consumer Choice and Budget Constraints
The limitation problem facing the consumer is determining what goods to buy and in what quantity, because their needs are many, and they have to rely only on their available income.
5. Elasticity of Supply
For a movement from “B” to “C”:
s = ΔQ / ΔP * PB / QB = (18 – 24) / (5 – 6) * 6 / 24 = 1.5
The type of elasticity of supply of good “X” is elastic because the calculation yields a result > 1.
6. Partial Equilibrium in the Market
It is said that the partial equilibrium market refers to a specific product or service. Under partial equilibrium, not all other assets in the market are taken into account. It seeks only to examine the various prices of the asset in question, as well as the respective quantities supplied and demanded, to find the price at which supply and demand equate.
7. Theory of Production Analysis
The theory of production analysis examines the best combination of inputs, greater economic efficiency with the best technology available, the production of a predetermined amount of a commodity or service, the maximum benefit of the producer, and production costs. These are all crucial to the better organization and greater profitability of any productive activity.
8. Fixed Costs vs. Variable Costs
Studying the Theory of Production Costs, it appears that the fixed cost, precisely because it is fixed in a given period, has the same value at the time. This provokes a line parallel to the “X” axis to be plotted. At no time can it be the same as the total cost curve since it is the sum of fixed cost plus variable cost. In turn, the variable cost, by changing over time, is not parallel to the “X” axis and therefore much less the sum of both (FC + VC). This shows that the graphical representation of both FC and TC can never be the same.
9. Price Modification in Perfect Competition
No, it is not possible for these companies to succeed since, by being in a mass consumer sector consisting of many businesses, they are within perfect competition as a market. Therefore, the price cannot be modified by each company individually, as they are considered an insignificant part of the market. This means that these companies must accept the market price and cannot change it to their own devices.
10. Long-Term Prospects for a Pure Monopoly
That possibility is not provided because the company is a pure monopoly. This means that a single company dominates the market. Even when there are no benefits, no other company can enter that market. In the long term, the monopoly will exist while there is the possibility of benefits, or while the company is sure not to produce either benefits or losses.