Gravitation of market prices towards normal prices: some new results

Bellino, Enrico and Serrano, Franklin (2017): Gravitation of market prices towards normal prices: some new results.

Abstract

The gravitation process of market prices towards production prices is here presented by means of an analytical framework where the classical capital mobility principle is coupled with a determination of the deviation of market from normal (natural) prices which closely follows the description provided by Adam Smith: each period the level of the market price of a commodity will be higher (lower) than its production price if the quantity brought to the market falls short (exceeds) the level of effectual demand. This approach also simplifies the results with respect to those obtained in cross-dual literature. At the same time, anchoring market prices to effectual demands and quantities brought to the markets requires a careful study of the dynamics of the ‘dimensions’ along with that of the 'proportions' of the system. Three different versions of the model are thus proposed, to study the gravitation process: i) assuming a given level of aggregate employment; ii) assuming a sort of Say's law; iii) and on the basis of an explicit adjustment of actual outputs to effectual demands. All these cases describe dynamics in which market prices can converge asymptotically towards production prices.

• Item Type: MPRA Paper
• Language: English
• Keywords: Market prices, normal prices, Classical competition, gravitation, effectual demand
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B1 - History of Economic Thought through 1925 > B12 - Classical (includes Adam Smith); D - Microeconomics > D2 - Production and Organizations > D20 - General; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E11 - Marxian ; Sraffian ; Kaleckian; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E30 - General

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