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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Murray N. Rothbard on Relative Price - Dictionary of Arguments
Rothbard III 281 Relative Price/Rothbard: The available goods are ranked, along with the possibility of holding the money commodity in one’s cash balance, on each individual’s value scale. Then, in accordance with the rankings and the law of utility, the individual allocates his units of money to the most highly valued uses: the various consumers’ goods, investment in various factors, and addition to his cash balance. Rothbard III 282 The law of the interrelation of consumers' goods is: The more substitutes there are availablefor any given good, the more elastic will tend to be the demand schedules (individual and market)for that good. By the definition of "good," two goods cannot be "perfect substitutes" for each Other, since if consumers regarded two goods as completely identical, they would, by definition, be one good. All consumers' goods are, on the other hand, partial substitutes for one another. When a man ranks in his value scale the myriad of goods available and balances the diminishing utilities of each, he is treating them all as partial substitutes for one another. A change in ranking for one good by necessity changes the rankings of all the other goods, since all the rankings are ordinal and relative. A higher price for one good (owing, say, to a decrease in stock produced) will tend to shift the demand of consumers from that to other consumers' goods, and therefore their demand schedules will tend to increase. >Demand/Rothbard, >Supply/Rothbard, >Price/Rothbard. Conversely, an increased supply and a consequent Iowering of price for a good will tend to shift consumer demand from other goods to this one and Iower the demand schedules for the other goods (for some, of course, more than for others). It is a mistake to suppose that only technologically similar goods are substitutes for one another. The more money consumers spend on pork, the less they have to spend on beef, or the more money they spend on travel, the less they have to spend on TV sets. Suppose that a reduction in its supply raises the price of pork on the market; it is clear that the quantity demanded, and the price, of beef will be affected by this change. Elasticity: If the demand schedulefor pork is more than unitarily elastic in this range, then the higher price will cause less money to be spent on pork, and more money will tend to be shifted to such a substitute as beef. The demand schedules for beef will increase, and the price of beef will tend to rise. >Elasticity/Rothbard. Inelasticity: On the other hand, if the demand schedule for pork is inelastic, more consumers' money will be spent on pork, and the result will be a fall in the demand schedule for beef and consequently in its price. Rothbard III 283 Consumer goods: (…) consumers' goods, in so far as they are substitutes for one another, are related as follows: When the stock of A rises and the price of A therefore falls, (1) if the demand schedule for A is elastic, there will be a tendency for a decline in the demand schedules for B, C, D, etc., and consequent declines in their prices; (2) if the demand schedule for A is inelastic, there will be a rise in the demand schedules for B, C, D, etc., and a consequent rise in their prices; (3) if the demand schedule has exactly neutral (or unitary) elasticity, so that there is no change in the amount of money expended on A, there will be no effect on the demands for and the prices of the other goods. Rothbard III 285 While all consumers’ goods compete with one another for consumer purchases, some goods are also complementary to one another. These are goods whose uses are closely linked together by consumers, so that movements in demand for them are likely to be closely tied together. Rothbard III 286 This discussion of the interrelation of consumers’ goods has treated the effect only of changes from the stock, or supply, side. The effects are different when the change occurs in the demand schedule instead of in the quantity of stock. (…) the demand schedules are determined by individual value scales and that a rise in the marginal utility of a unit of A necessarily means a relative fall in the utility of the other consumers’ goods. >Marginal utility/Rothbard, >Stock keeping/Rothbard, >Comparative Advantage, >Durable goods._____________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. |
Rothbard II Murray N. Rothbard Classical Economics. An Austrian Perspective on the History of Economic Thought. Cheltenham, UK: Edward Elgar Publishing. Cheltenham 1995 Rothbard III Murray N. Rothbard Man, Economy and State with Power and Market. Study Edition Auburn, Alabama 1962, 1970, 2009 Rothbard IV Murray N. Rothbard The Essential von Mises Auburn, Alabama 1988 Rothbard V Murray N. Rothbard Power and Market: Government and the Economy Kansas City 1977 |
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