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Analysis on Neoclassic Equilibrium Theory of Price
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In particular, natural price is the long-run market equilibrium price. Later, the issue that short-run market equilibrium price fluctuates around the long-run market equilibrium price will be discussed.
Here, the socially necessary labor time in a firm and the value determined by a firm are exactly the individual labor time and the individual value in Marx's book. For the smallest unit that Marx studied is a firm, the average value in firms is named as the individual one. However, the smallest unit studied here is the individual product, therefore only the amount relevant to the individual product can be called as the individual one, but the average amount in firms cannot be called as the individual one.
The form of function relation between labor expense and output has borrowed from the form of neoclassical production function (see Bai 1999, Part 2: Chap. 8).
In the market, Marx said, “The supply is equal to the sum of sellers, or producers, of a certain kind of commodity” (Marx 1998, 192).
It should be paid attention that the definition of average labor expense AW in previous chapters means the average labor expense in a firm.
It is just the so-called first definition of socially necessary labor time popular in academia for a long time. The so-called second definition of socially necessary labor time will be discussed in other articles.
Engels said, “The first application of value is the decision as to whether a thing ought to be produced at all; i.e., as to whether utility counterbalances production costs” (Marx 1988, 426).
This differential equation can be solved for the relation between the quantity consumed and the sale value, which is just the market demand function.
Under the assumption of diminishing marginal utility, the demand curve must be downward sloping. If this assumption is relaxed and only diminishing marginal rate of substitution is assumed, the introduction of the substitution and income effects can explain the phenomenon that the demand curve of Giffen Goods is upward sloping (when diminishing marginal utility is in, the diminishing marginal rate of substitution is certainly in; but the diminishing marginal rate of substitution does not require diminishing marginal utility necessarily). However, the issue will not be discussed here.
Marx said, “If commodities are sold at their market-values, supply and demand coincide.” “Although the necessary labour-time assumes a different meaning here. Only just so much of it is required for the satisfaction of social needs” (Marx 1998, 630).
In Capital , vol. 3, Chap. 10, discussing the market price and value Karl Marx said,So long as we dealt with individual commodities only, we could assume that there was a need for a particular commodity—its quantity already implied by its price without inquiring further into the quantity required to satisfy this want. This quantity is, however, of essential importance, as soon as the product of an entire branch of production is placed on one side, and the social need for it on the other. It then becomes necessary to consider the extent, that is, the amount of this social want. (Marx 1998, 183)