Economics Dictionary of ArgumentsHome
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| Relative price: Relative price in economics refers to the price of one good or service in comparison to another, often expressed as a ratio. It reflects the opportunity cost of choosing one item over another. Changes in relative prices influence consumer behavior, resource allocation, and the supply and demand for goods in the market. See also Price._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Friedrich A. von Hayek on Relative Price - Dictionary of Arguments
Boudreaux II 62 Relative prices/Hayek/Boudreaux: The challenge, (...) is to get the economic details right so that produc-ers have both the knowledge and the incentive to produce the "right" mix of outputs. Relative prices are the main source of both this knowledge and these incentives. Knowldge/production: Relative prices are the main source of both this knowledge and these incentives. Def Relative prices: Relative prices are the prices of some goods and services relative to the prices of other goods and services. Examples are the price of a Toyota automobile relative to the prices of a Ford automobile and of a Honda automobile, or the price of a bushel of wheat relative to the prices of a bushel of rye and of a bushel of rice. Production/demand/costs/market: Relative prices are the most important "directors" of economic activity. If the pattern of relative prices accurately reflects the many different demands of consumers as well as the costs of the inputs that can be used to satisfy these demands, then entrepreneurs, investors, and consumers will be led by these prices to act in ways that result in all of the economy's "pieces" being fitted together into a productive whole. The economy at large will work pretty smoothly. Demand: If, for example, consumers come to like oranges more than they had in the past, then the price of oranges will rise relative to the price of grapefruits. Farmers will soon produce more oranges and relatively fewer grapefruits. Or if supplies of iron ore fall, the price of Steel will rise relative to the price of aluminum. Manufacturers will shift their production so that they use less Steel and more aluminum to produce their products. Boudreaux II 63 Interest rates: If interest rates fall, businesses will increase their investments in activities such as factory expansion, worker training, and research and development. >Microeconomics, >Macroeconomics. Boudreaux II 64 Production: And producers will have incentives to “listen” to these prices. The reason is that producers earn higher profits by expanding production of outputs whose prices are rising. Likewise, producers avoid losses by producing fewer of those outputs whose prices are falling. >Knowledge/Hayek, >Price, >Price theory. Boudreaux II 66 Economic cycles: adjustments in production activities (…) , are not instantaneous. They take time. Unemployment: Unemployment rises during the time it takes for these adjustments to be made. Workers in industries with unsold inventories are laid off, and time is required for them to find employment elsewhere. Even industries that expand in response to more accurate prices typically require some time to rearrange their production plans and facilities in order to make profitable the hiring of new workers. The time it takes for the firms to adjust away from the production plans they made when prices were inaccurate is time during which unusually large numbers of workers are unemployed._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Hayek I Friedrich A. Hayek The Road to Serfdom: Text and Documents--The Definitive Edition (The Collected Works of F. A. Hayek, Volume 2) Chicago 2007 Boudreaux I Donald J. Boudreaux Randall G. Holcombe The Essential James Buchanan Vancouver: The Fraser Institute 2021 Boudreaux II Donald J. Boudreaux The Essential Hayek Vancouver: Fraser Institute 2014 |
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