1. Wicksteed made a significant contribution to value theory during the marginal utility revolution. This contribution was the “Exhaustion of the product” which we derived in class. Explain the importance of this contribution. Explain the significance of the Euler theorem and the assumption of constant returns to scale in deriving the solution. In what ways is this contribution similar to Marx's Transformation Problem, in what ways is it different? Wicksteed was one of the first economists introduced the operation of constant returns to scale in production and applied the Euler Theory to prove the product exhaustion problem. “The Product Exhaustion Theorem states that with constant return to scale and marginal- cost, the value of output equals the value of inputs, their marginal product. If each factor is rewarded equal to its marginal product, the total product, the total product should be disposed of without any surplus or deficit.” Since Wicksteed applied the Euler’s Theorem this showed that if all factors are paid equal to their marginal products then the total product will be just exactly exhausted. “Euler’s work on homogeneous function of the first degree, applied in the working theory of factor pricing and income distribution. P. Wicksteed and Wicksell argued that all the variable inputs will be paid according to their marginal product” (Blaug 1997). The simplest way to illustrate the theorem is by using a two-factor model. “The factor inputs such as labor (L) and capital (K) are each paid a price (PL and PK, respectively) which will be equal to the value of its marginal product (MPL and MPK, respectively).” “If firms operating under perfect competition want to optimize their input level by selecting the input quantities... ... middle of paper ... ...onomic level, restructuring is characterized by countless decisions to create and destroy production arrangements. These decisions are often complex, involving multiple parties as well as strategic and technological considerations. The efficiency of those decisions not only depends on managerial talent but also hinges on the existence of sound institutions that provide a proper transactional framework. Failure along this dimension can have severe macroeconomic consequences once it interacts with the process of creative destruction” (Scoar, 5). Animal spirits is a term coined by the economist John Maynard Keynes, who was a British economist. It is to emphasize the important of confidence and the instinct of businessmen on their future business. Keynes monetary theory is about inadequate profit levels and its risk involving investment decisions.
What Michael describes in his new book is very sensational. Michael handles a topic which in the reality would be interesting only to sport s fans and makes it fit into the field of economics. Michael outlines the way Oakland Athletics’ general manager, Billy Bean, who is described as very charismatic, used all means including statistics to transform his team. Apart from bringing out this exceptional move by Billy Bean, the author goes further to discuss an inspirational story regarding superior database management. This means that Lewis’s book is packed with a lot of items which makes it not only a reserve for those who can differentiate between a screwball and a slider. The book has some broader lessons for everyone to read. The main focus of these lessons is to clarify the efficiency of labor markets as well as the limits of human rationality. Lewis outlines the confusions and blunders of those managing baseball teams. Through this tale about baseball team managers, Lewis goes to explain how the tale has a lot to reveal about confusions and blunders in different other domains (Lewis, 2003).
Adam Smith begins his analysis of the market society with a look at the division of labor. He elaborates on the idea that the division of labor is essential for the growth of a civilization. Smith explains how for example, the production of pins can be done more efficiently with the breaking down and deconstruction of
This was a result of the complexity, the increasing growth of the economy, and differing worldviews which were present in this society which were not prevalent in pre-industrial societies. However, division of labour which was forced upon individuals contributed to social disorder. Forced division of labour is defined as when an individual is forced to do a job which they are not suitable. To prevent this, he believed that education could play a crucial role in the process of allocation suitable people to the most appropriate jobs. Additionally, Durkheim contended all talented individuals should be given the equal opportunity to be employed to the jobs which they were the most suitable. Though, this equal opportunity did not entitle all individuals to equal wealth. Considering some jobs were deemed more important, they were to receive more incentives and wealth than others; making a certain amount of inequality inevitable. Though, Marx believed that inequality was inevitable due to being generated by
Smith’s theory of economic growth can be formulated in a simple algerbraic equation. Where G equals the growth rate, K equals the ratio of productive to unproductive labor, P equals the productivity rate and W equals the real wage:
Karl Marx, Max Weber, and Emile Durkheim all offered differing perspectives on the division of labor. Marx claims that the division of labor is motivated by the market. Weber claims that it developed through the industrious essence of the Protestant ethic. Durkheim claims it developed due to an increase in dynamic density. Each theorist argues that the division of labor impacts society using differing methods. The challenge is the management of attaching different values without causation of detriment to the system. All of the theorists explain how differing values inherently offer intrinsic values to individuals within the division of labor. The division of labor is the cause of evolving societies because it influences individualism and perpetuates
The Industrial Revolution marks a major turning point in history, because before this revolution, life for the average person was difficult, as incomes were very little, and malnourishment and disease were common. People produce the most of their own food, clothing, furniture and tools. Robert E. Lucas, Jr., winner of Nobel Prize, said: ‘’For the first time in history, the living standards of the masses of ordinary people have begun to undergo sustained growth... Nothing remotely like this economic behavior is mentioned by the classical economists, even as a theoretical possibility.’’1.
In the process of production, human beings work not only upon nature, but also upon one another. They produce only by working together in a specified manner and reciprocally exchanging their activities. In order to produce, they enter into definite connections and relations to one another, and only within these social connections and relations does their influence upon nature operate (Marx).
Animal spirits are a product of irrational behavior and are a major driving force in the economy. Intuitive then is the notion that animal spirits are also heavily involved in the process of economic boom and bust cycles. This much is straightforward and in reality seems to be the case. Animal spirits, which were initially defined by John Maynard Keynes, characterizes a variety of exogenous variables that could not be accounted for in the mainstream rational economic theories of the time. This definition was later reclassified by Akerlof and Shiller in their title book and provided some of the mechanics behind seemingly irrational behaviors. Akerlof and Shiller described and highlighted five specific features of animal spirits that affect the
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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.
This method is akin to dividing the economy into AL pieces. As a result, we can look at the quantity of capital per unit of effective labour and its impact on output per unit of effective labour, as opposed to being overly concerned with the overall size of the economy. f(k) is assumed to satisfy that f(0) = 0, f’(k)> 0 and f”(k) <0. this means that the marginal product of capital is positive, but it declines as the level of capital rises , i.e. there is diminishing marginal product of capital.
The division of labour is ‘the greatest improvement in the productive powers of labour.’ To further increase this productivity is the individuals to specialize in their work; to do the work that is best suited to their needs, talents and ‘from regard of his own interest’ thus making work easier for all involved in the economic market place and labour force. As each worker specializes further into more niche roles, the less work each worker has to accomplish but more work can be done at a faster rate, increasing efficiency. According to
Wen, L. & Zhou, H. 2009, ‘Ability, openness and managerial decision making’. Atlantic Economic Journal, vol. 37, no. 2, pp.197-208.
(3) A manager will improve his decision making, if he has the information he needs,
In “Industrious Revolution”, de Vries discusses how as the economy continues to expand so does the household and the markets involved. Households begin to divide labor towards market oriented production requiring the assistance of all members of the family involved in order to respond to economic incentives such as, new luxuries. Of course, this gradually changes as the household shifts into more specialized labor such as the adult male being the main provider, women performing housekeeping tasks, and children attending school. Consequently, a rise in production naturally follows this division of labor as more households are able to specialize in their productivity while beginning to for consumer demand in the economy. Consumer demand would then naturally push other areas of the market to increase their production to meet that demand. Adam Smith expresses that the division of labor has caused the greatest increase in production as stated, “The division of labor, however, so far as it can be introduced, occasions, in every art, a proportionable increase of the productive powers”, but is only carried the furthest within countries that enjoy the highest degree of industry. Similar to de Vries, Smith believes that the division of labor is hindered by limited opportunity for barter or exchange of goods and that the introduction of new commodities would force an individual to work harder or longer. Smith and de Vries both agree that the modern economy resulted from both consumer demand and the supply of market oriented labor which grew by means of reallocations of productive resources, becoming the driving force for economic