NationStates Jolt Archive

I've been reading a few things about economics, but not enough to bring myself out of the novice level. What do you believ really determines price in economics? Adam Smith said that the true price of things is measured in labor, and I can agree with that, but what is your opinion? Do you think anarcho-capitalism is plausable?

I think it is labor.

It costs money to pay to manufacture, ship, and sell products. Companies need to make a profit, so they extablish a price that pays for the production of the product and a little more for their own profit.

Then again, I never studied economics.

I think it is labor.

It costs money to pay to manufacture, ship, and sell products. Companies need to make a profit, so they extablish a price that pays for the production of the product and a little more for their own profit.

Then again, I never studied economics.
That makes sense. Of course you can't say that this product was made by this much labor, that would be abstract. Its much easier to place a monetary value behind it based on how much labor was used.

I've been reading a few things about economics, but not enough to bring myself out of the novice level. What do you believ really determines price in economics? Adam Smith said that the true price of things is measured in labor, and I can agree with that, but what is your opinion? Do you think anarcho-capitalism is plausable?
after studying economics at different levels for 5 years, i can say that the answer is not one single thing.

labour is one element of the costs of production. in a new market, these set a firm's initial price in that they must cover costs. the firm will then wish to make profit, and will add to the price accordingly. the laws of supply and demand then dictate how much of the product will be bought at the price selected. the firm wishes to maximise profits, and will find the price - through trial-and-error or maths - that maximises profit. they will then sell at this price until a competetor enters the market, when they will compete over the price, pushing it down (generally).

in an established market, the price is pretty much set by competetor's prices and the ensuing price competition.

hope that makes sense :)

There are many factors. Supply and demand, labor and overhead, tariffs and protectionism, government subsidies, investors, and so on.

In the free market, the major factors are supply and demand. The best way to look at it, and most accepted way, is through Supply and Demand curves. The supply curve represents how much of a good will be produced at a particular price, while the demand curve represents how much of a good will be purchased at a price. Where these two curves meet up is called the equilibrium price. The equilibrium price is where prices will be set in a perfectly free market.

I've been reading a few things about economics, but not enough to bring myself out of the novice level. What do you believe really determines price in economics? Adam Smith said that the true price of things is measured in labor, and I can agree with that, but what is your opinion? Do you think anarcho-capitalism is plausable?

Supply and Demand determine price. I believe the true price is measured in terms of costs versus profit. I believe anarcho-capitalism is possible.

The economic answer would be quantity demanded and quantity supplied. A business entity is unlikely to sell its products at a loss, but there are exceptions such as subsidies.

That makes sense. I am a novice at this so bear with me.

I guess I'll lay out a sample list of potential costs for any product.

1) idea creation: You need an product to create after all.

2) research: You need to know what goes into that product, what comes out of it, and what has already been made in that general area.

3) development: You need a prototype or sample.

4) testing for safety/reliability: You need to know how your design holds up to use, how much it will cost you to maintain it.

5) testing for effectiveness/improvements on existing design: If there are already competitors on the market, you'll need to know how your design compares, at the very least you can take what you learned from the prototype and rework it as needed.

6) testing for marketability/elasticity of price: Who is going to use your product? How attractive is it to the market, how much are you going to have to "Sell" it and how much will it sell itself? How much can you get for your product?

7) Creation of infrastructure to make product: You'll need to make your product, where will you make it? What tools will you need? What Shipping system will you use? If needed, how will you aquire raw materials for your product?

8) Selection of labor needed to make product: Who's going to build your product? How much education/training will they need? How much training will you need to provide yourself, how much can you rely on existing workers? How much will the workers cost you after training? How many workers do you need?

9) Patents, intellectual property, Competing firms: How much will it cost you to defend your product from copycats? How much will piracy, black markets, cheaper competition cut into your market share?

10) Actual conditions of market/perception of public to your product: How many perfectly good products are stillborn because they get bad reputations? How much will public perception/industry perception effect your market share?

You can apply just about any product to this model; new inventions have a harder time because they need more R&D, more training for labor, and a hard creating markets for their product. Products that are well established are also difficult to move forward with because of the increased competition, defined markets and labor costs (which could hurt or help you), etc.

I would like to point out at this time that some products ARE not profitable. Take Community Transit operations as an example, they frequently are not profitable. In a purely capitalistic standpoint, making them profitable would mean cutting hours of operation to peak times, and only offering services where fares would compensate for maitinence costs.

However that would defeat the entire purpose of CT organizations! CT operations are supposed to support the community in getting labor to their workplace all without; enviornmental risks of solo-driving, traffic build-up for increased gridlock, parking spaces for wasted, expensive property in-city.

Thus some programs, products, etc. may not be profitable, but they are still needed or desireable aspects of a functioning society. Many Purist Capitalists seem to have forgotten this fact.

*snip*

All of the costs you have listed are fixed start-up costs. In most industries not related to the healthcare or technological sectors, those are secondary to marginal costs.

Companies may set prices artificially low compared to that set of costs if they predict good sales, and the demand curve allows for a good deal of marginal revenue.

Know you any good sites that you can direct me to? I want to get into economics in college so I wanted to start before then.

I've been reading a few things about economics, but not enough to bring myself out of the novice level. What do you believ really determines price in economics? Adam Smith said that the true price of things is measured in labor, and I can agree with that, but what is your opinion? Do you think anarcho-capitalism is plausable?

Whoever sells it determines the price, who do you think that American products are only a few dollars more expensive than chinese products, yet American workers make hundreds times more when benefits and pay is calcualted.

Do you think anarcho-capitalism is plausable?

No. Anarcho-Capitalism is about as possible as true communism. The main issue with anarcho-capitalism is the fact that everything is privitized. Not just what we think of as the private sector but everything. Police, fire, medical care, roads, laws, printing money. All of it is owned by a private firm interested in making money.

The real issue behind it is the fact that nothing would mesh, thats why the government has taken over things like interstate commerce. What if the rails of railroads didn't line up (as they did before government mandated a standard). If you can't afford to pay for fire or police services, how do you gain protection in cases of theft or fire on property? Who gets to decide what money is legitamite and where it can be used? Who gets to create the standrds for laws?

All these things can't be done in an anarcho-capitalistic society because of the fact that no company would want to relinquish power to bow to another companies wishes. Again with roads - what are the speed limits? how are they taken care of? Who builds them? Have you ever gotten pissed off because a cop was sitting right next to a speed trap to get speeders who hadn't had a chance to slow down? Well, imagine that every time you turned onto another road, it had a different speed limit, different direction signs (or none at all) was in different condition, and had a different owner?

Who controls the economy to prevent an unnatural monopoly from starting up? Well sure, another guy could go off and start another comapny, but whats to prevent the monoploy frrom simply undercutting his prices or forcing him out of business with agressive techniques?

Who sets minimum wages for workers? Do companies get that right? Well, if so, prepare to starve. Companies would want as much profit as possible so they could expand business. If you don't really have a choice as where to work because there is so much competition for jobs then how can you make a livible wage. Yes, your choice go down to pretty much slave or starve.

What the anarcho-capitalist economy relies on is pretty much supply-pull economics. The companies choose how much of a product to make and then set their prices for maximum profit. The consumers can either pay the price or shop around. When they start to shop around is when one of two things happens.

1. Companies enter into alliances (like gas companies) and never charge below a certain price making sure that the consumers don't have much of a choice.

2. Price war. Hurt the companies can ultimatly lead to a monoploy though.

Anarcho-capitalism just has too many societial issues working against it to be a plausable economic system.

The above points are fair enough, but they assume competition in the market, ie that suppliers are price-takers, not price-setters. If they're price-setters, eg because they're in a monopolistic or oligarchic position, the price is less fixed to costs of production and more a question of what the supplier thinks they can get away with. It's an issue you'd have to address in a hypothetical anarcho-capitalist economy, because monopolistic positions, if unchecked, do not lead to the maximisation of utility that classical economic theory predicts for free markets. Hence the economic argument for regulation and/or nationalisation.

The currently fashionable model for getting round this position is the Austrian model (which is the economic theory of choice for libertarians), which posits that monopolistic positions are never sustainable in the long term. That is, without state interference, competitors will enter the market once the incentive (ie potential profits) becomes high enough. My considered response to that is, "dream on, boys". It ignores the history of technology and the drivers for technological change, not to mention major league marketing strategy. (Or, in one word: "Microsoft") I'm also not sure how it deals with patent and copyright laws.

Finally, if you're looking at price in a capitalist economy, you need to consider capital, economic rents and the opportunity costs associated with the consumption of capital resources. Another issue for anarcho-capitalism: how to ensure a fair distribution of capital resources. If you don't get that right you're going to run straight into monopolies, especially in primary industries, eg mining.

Can't recommend a site, BTW. The only ones I've found are run by Austrian school adherents, and you enter those at your own risk. Check out a library - primer economic textbooks aren't difficult to follow. Good luck.

Add: Blargistania makes some very good points about unregulated capitalism.

Only supply and demand can determine price. Labor, no matter how cheap or expensive has no bearing on the price of anything if nobody wants it.

Whoever sells it determines the price, who do you think that American products are only a few dollars more expensive than chinese products, yet American workers make hundreds times more when benefits and pay is calcualted.

That is explained by protectionism.

Only supply and demand can determine price. Labor, no matter how cheap or expensive has no bearing on the price of anything if nobody wants it.

That's too simplistic in today's world though.
Supply is made up of:
Land/Real Estate
Labor
Capital/Tools

Demand is made up of:
National income

According to Marxist analysis, Land is intrinsic, and isn't technically "owned" but rather leased in capitalist terms, Labor the dynamic part of capitalist production, & Capital; which is made up of other Land-Labor-Capital mixes. At the primeir stage of production there is just Labor and Land, since Land is just leased, there is just labor. So by this-very simplistic admittedly-analysis. Labor sets prices.

For those still struggling with this... The only factor of demand is national income. Which comes from labor :) Pretty cool stuff huh?

That's too simplistic in today's world though.
Supply is made up of:
Land/Real Estate
Labor
Capital/Tools

Demand is made up of:
National income

According to Marxist analysis, Land is intrinsic, and isn't technically "owned" but rather leased in capitalist terms, Labor the dynamic part of capitalist production, & Capital; which is made up of other Land-Labor-Capital mixes. At the primeir stage of production there is just Labor and Land, since Land is just leased, there is just labor. So by this-very simplistic admittedly-analysis. Labor sets prices.

For those still struggling with this... The only factor of demand is national income. Which comes from labor :) Pretty cool stuff huh?

No, you try to complicate something that is quite simple - without desire there is no demand. With no demand there is no price. That is why 'New Coke' failed. Nobody wanted it. There were plenty of costs involved in its creation and distribution, but if nobody wants it there is no value - and it becomes not worth its cost to create.

Income is a determiner in how much demand there can be for a desireable product, but supply and material and labor costs do factor as well. Hyper inflationary economies trash your theory to shreds.

Do you think anarcho-capitalism is plausable?


I've studied this, and I don't think it is...atleast not now. If we lived in a libertarian society, it wouldn't seem inconceivable. Though I don't find myself that personally idealistic, and believe a libertarian society is much more appealing. If America followed the Constitution, I would be a lot more content with the country.

http://en.wikipedia.org/wiki/Anarcho-capitalism

The two extremes aren't really nescessary in this world.