The Theory of Exchange Value and Relative Prices
Exchange Value
Ricardo believed that by looking at the basis for the ratio of exchange between commodities, he would be able to establish the factors that cause a change in relative values over time; showing his interest in relative value over absolute value.
Ricardo stated in Principles of Political Economy and Taxation (1871) that use value is needed to for a commodity to have exchange value. Although utility, which is the subjective want satisfying power, does not directly cause proportionate changes in exchangeable value, it helps to give an idea. According to Ricardo, the factors that affect exchange value of commodities boils down to scarcity and quantity of labor required to obtain them. In his labor theory of value, he only looks at reproducible goods which are produced constitutively while under conditions of competition. He ignores non-reproducible commodities because their exchange value is mainly determined by the wealth of their demand, and their fixed supply only serves to boost the desires for ownership.
Ricardo’s labor theory of value states that the exchange value of a reproducible commodity depends on labor time required for production. Labor time includes work done from production of raw materials and capital goods needed to production of the commodity itself. By staging the process, Ricardo felt that it would be easier to establish what caused changes in exchange values over time. Therefore, if the ratio of exchange between commodity A and commodity B rose from 3:1 to 6:5, we would be able to determine the labor time and hence the factors causing the change in exchange values between the two. It should be noted that unlike Smith who gave distinction between primi...
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...y. Individuals tend to keep market prices proportional to values and equalize the profits so they get maximum benefits. Short and long-run values are things that are taken into account when determining their market value. The first depends greatly on supply and demand therefore its market price may fluctuate greatly. In long-run values however, more attention is paid towards the real and relative costs of production. They have to be proportional to the labor time of the entire production process.
Still, there is no permanence in the market price hike above the natural price caused by demand however abundant demand can be. The value will always depend on the expenses of its production, which includes profits to producers. Therefore, the factors that change permanent price in the expenses of production, and their relationship with demand are prime subjects of study.
Adam Smith, David Ricardo and Thomas Malthus have all greatly influenced how people thought about modern economics, especially in areas relating to markets, in terms of the economy and whether certain things affected population rates. In this essay I will cover each of the three topic areas and how each economist interpreted these areas in order to explain why certain phenomena occur within British economics, most of which are still widely accepted today.
Although, it is now known that capitalists don’t make profits by exploitation, but rather from taking risks and organizing consumption. He says that it is not unfair but that this exploitation is why there is a class struggle, and an economic crisis. Developing the labor theory of value even further, Karl Marx says that workers have no other choice but to be exploited, because they have no other means of production. The labor theory of value, further explained by Karl Marx’s viewpoint, says that the laboring of the proletariat, working class, is what creates new value which then translates into profit. Due to the fact that capitalists do not make profits by exploitation, the labor theory had some problems. These problems were fixed by the subjective value theory. This theory said that exchange value is not absolute and is based on individual evaluations. The subjective value theory also says that value comes from a human perception of what he views as useful. The discovery of this theory changed the relationship between input costs and market
The theory of diminishing returns and rent is one of the theory that make David Ricardo become a famous economist. The Ricardo’s law of diminishing returns and theory of rent developed in response to debate over the Corn Laws. Ricardo assumed that the increase in output from each additional worker decreases as the number of workers increases. The situation will occur when the factor of production was saturated the market and when added more of the factor of production, the market will might have a negative increase.
Due to the importance of theory for constructing this essay there will be a heavy reliance on outside sources to construct my analysis. Included are the original works of Graeber and Mauss as well as other authors who are analyzing the work of Marx, Bourdieu, and alternate theories of value.
In his work, Marx presents the amount of power exchange-values impose upon the economy, as he states “As use-values, commodities are, above all, of different qualities, but as exchange-values they are merely different quantities, and consequently do not contain an atom of use-values” (Marx 54). It is with this analysis that Marx is able to present the link between labor and the productions that result from a worker 's dedication. As a result, it becomes evident that exchange-values possess an extraordinary amount of influence with regards to the worth of an object and a worker’s salary. However, this worth changes with time and depends on the usefulness of the product. This is especially made evident when analyzing the twenty-first century business world. In 2015 a report by Sorensen was published, discussing the role of exchange-values in the American economic-system. Thus, demonstrating the neglect of use-values, while highlighting the power of exchange-value as Sorensen writes, “Most
According to Locke’s theory, a commodity becomes the private possession of an individual who labors for it. Thus it is no longer a direct gift of nature: [A man] “that so employed his pains about any of the spontaneous products of nature, as any way to alter them from the state which nature put them in, by placing any of his labour on them, did thereby acquire a propriety in them” ( 360).
Labor theory of value stipulates that the amount of labor needed and used in production of such commodity determines the value of a commodity. Other factors of production do not determine the value of a commodity except those factors that have labor elements. Adam Smith and David Ricardo are associated with the labor theory of trade. The Value in this regards refers to the amount of labor required in production of commodities.
Homans explains society through the lens of an exchange and rational choice theorist. Methodological individualism is when sociologist starts with the relationships between humans on a micro level. This method views civilization through micro conflicts and believes “individuals shape society through their intentional actions” (Notes Exchange Theory/Rational Choice Theory). Homans regards social behaviors as an exchange, which is somewhat rewarding or costly. Furthermore, he believes that people will repeat the same actions as long as the costs outweigh the benefits. If a past activity was rewarded, then the person is more likely to repeat it. Equilibrium occurs to an individual when a balance of reward and cost is met. Occasionally, rewards
The pivotal second chapter of Adam Smith's Wealth of Nations, "Of the Principle which gives occasion to the Division of Labour," opens with the oft-cited claim that the foundation of modern political economy is the human "propensity to truck, barter, and exchange one thing for another."1 This formulation plays both an analytical and normative role. It offers an anthropological microfoundation for Smith's understanding of how modern commercial societies function as social organizations, which, in turn, provide a venue for the expression and operation of these human proclivities. Together with the equally famous concept of the invisible hand, this sentence defines the central axis of a new science of political economy designed to come to terms with the emergence of a novel object of investigation: economic production and exchange as a distinct, separate, independent sphere of human action. Moreover, it is this domain, the source of wealth, which had become the main organizational principle of modern societies, displacing the once-ascendant positions of theology, morality, and political philosophy.
Jennifer Unger & C. Anderson Johnson, “Explaining Exercise Behavior and Satisfaction with Social Exchange Theory,” Perceptual and Motor Skills 81 (1995): 603-608.
... Also important is the price of complements, or goods that are used together. When the price of gasoline rises, the demand for cars falls.
In this project, we attempt to find out the causes for this price rise, the trends of the rise and the effects that this rise has had on us.
Social Exchange theory was created by George Homans in 1958. Since its publication as “Social Behavior as Exchange”, several other theorists like Peter Blau, Richard Emerson, John Thibaut, and Harold Kelley have contributed to the theory. Before diving into the biggest concepts of this theory, two main properties need to be discussed. This theory is all about social exchanges, which are essentially reactions and decisions in relationships. The two properties are self-interest and interdependence. They are the two fundamental interactions between two individuals who each have something of value to the other. When an individual is looking out for their own self-interest, they are looking out for their own economic and psychological needs which can result in things like greed and competition. However, self-interest is not seen as a negative thing; in fact, it can result in both parties achieving their own interests. Interdependence, on the other hand, is harder to study but it is the combination of the two using both their efforts to gain something. Interdependence has higher social implications. Homans, as the founder of the theory, had it say that the theory consists of a social exchange with rewards and costs between at least two people. Rewards are defined as objects that have a positive value and are sought out by individuals. Costs are defined as objects that have a negative value and are avoided by individuals. Rewards in regards to relationships are things like support, friendship, and acceptance, while costs are things like energy spent, time, and money. Essentially this theory states that every individual is trying to maximize their wins or their worth and end up with something that is more positive than negative. Worth equ...
...n the companies will have to decrease the price otherwise the product will not be sold at higher prices and the revenue would not be as large as companies would like to.
For example, the chart would reflect the correlation between demand and the products price, or in the case of supply, the supplied products and its price. Moreover, supply, demand, and price, along with supply elasticity can be graphed and analyzed. This particular method of tracking and analyzing data is essential in identifying the markets status and determining the best plausible route (Skousen, 2014). By studying supply and demand, one is also able to identify whether an excess or a shortage in demand or supply is occurring, or whether an equilibrium has been attained. Consequently, it is evident that supply and demand take part in the market economy and greatly influence and impact the price value. Furthermore, to express how supply and demand impacts the price value, the price value of airline tickets will be utilized as an