Why has Capitalism failed to produce optimal value everywhere?

[Kidlicious]

Originally posted by Drogue
Of course not. We're looking at the market for one good, that good has a buyer and a seller. The seller buys other goods, yes, but it doesn't by that good.

Producer surplus only has to do with consumers indirectly. When a firm purchases inputs it's the buyer. It gets producer surplus, generally. Perfect competition is a non issue. I'm not sure how you are getting the idea that it is.

[Kidlicious]

Originally posted by Whaleboy
I think he's talking about a particular instance of a commodity

or something

I'm old and miserable

You're a smart old miserable bugger.

[Drogue]

When talking about any good, the buyer is the consumer and the seller the producer. Whatever they go on to produce with it is irrelevant to that good. In perfect competition, for a good, there is no producer surplus. Look at a text book for a mathematical proof of it.

Producer surplus is the amount a company gets above what it's willing to sell each good for. Hence the area under the price but above the supply curve. In perfect competition, is no area above the supply curve but below the price, hence no producer surplus.

Perfect competition is not just to do with consumers, it's to do with producers too. In PC, there is no producer surplus, but pareto efficiency and maximum consumer surplus.

[Kidlicious]

Originally posted by Drogue
When talking about any good, the buyer is the consumer and the seller the producer. Whatever they go on to produce with it is irrelevant to that good. In perfect competition, for a good, there is no producer surplus. Look at a text book for a mathematical proof of it.

Producer surplus is the amount a company gets above what it's willing to sell each good for. Hence the area under the price but above the supply curve. In perfect competition, is no area above the supply curve but below the price, hence no producer surplus.

Perfect competition is not just to do with consumers, it's to do with producers too. In PC, there is no producer surplus, but pareto efficiency and maximum consumer surplus.

Aye! A producer is not a consumer first of all. You were making perfect sense until a short time ago. What happened? The supply curve is upward sloping. The price intersects it and there is an area above the supply curve and below the price.

[Kidlicious]

Originally posted by Drogue
Exactly, price has nothing to do with value to a person (well, psychologically it may have some). However it does have a lot to do with how an economy values something. Value = willingness to pay, which is independant of price. Price in a competative market is the willingness-to-pay of the marginal consumer. SO the phrase "the economy values suchandsuch a good at £5" means that's the price of it, that's what you'd have to give up to obtain it. You're personal value may be higher, which is when you buy it, and if it isn't, then you don't.

How things are valued is a different type of value. Gold is valued at a certain price. Using that definition value is equal to price. But that is not the same thing as the value that you get from consuming something. The value that you get from consuming something is the utility that you get. There is not way to measure it. What we can do is tell what created that utility, labor.

[Drogue]

Yes a producer is not a consumer, and no, in perfect competition there is no part of the supply curve under the price.

Here's it graphically:


The supply curve is the marginal cost curve above the average cost curve. Notice there is no point where that is below the price. Hence there is no producer surplus.

[Drogue]

Originally posted by Kidicious
How things are valued is a different type of value. Gold is valued at a certain price. Using that definition value is equal to price. But that is not the same thing as the value that you get from consuming something. The value that you get from consuming something is the utility that you get. There is not way to measure it. What we can do is tell what created that utility, labor.

Utility isn't value, and more importantly, the amount of labour put into something has absolutely no bearing on it's utility. A painting that took 100 hours to paint gives me no more pleasure than exactly the same painting painted in 20 hours, by the same person.

[Kidlicious]

Originally posted by Drogue
Yes a producer is not a consumer, and no, in perfect competition there is no part of the supply curve under the price.

Here's it graphically:


The supply curve is the marginal cost curve above the average cost curve. Notice there is no point where that is below the price. Hence there is no producer surplus.

MC is the supply curve period. AC is something else. MP is the difference between the price and MC, aka producer surplus.

[Kidlicious]

Look at this one.

[Kidlicious]

These graphs don't really demonstrate what I'm saying though, and I don't really want to create my own. Consider the labor market, not the finished goods market. There the producers are the buyers, and represented by the demand curve, and the laborers are the suppliers represented by the supply curve. Producer surplus then is the area between the demand curve and the wage.

[Kidlicious]

Originally posted by Drogue

Utility isn't value, and more importantly, the amount of labour put into something has absolutely no bearing on it's utility. A painting that took 100 hours to paint gives me no more pleasure than exactly the same painting painted in 20 hours, by the same person.

Utility is value. I taken you haven't taken any history of economic thought courses yet. There's a good website to get historical arguments on value. Just search 'history of economic thought or something like that.'

[Drogue]

Originally posted by Kidicious
MC is the supply curve period. AC is something else. MP is the difference between the price and MC, aka producer surplus.

No, you're wrong. If supply is below AC, the firm is losing money, and thus will shutdown. It's known as the shutdown condition. Please, if you want to discuss economics, at least make sure you're preliminary understanding is correct. Even my basic intro to microeconomics covered that.

The supply curve is only the MC curve above the AC curve. Hence, in PC, there is no supply curve above the price.

Originally posted by Kidicious
Look at this one.

That's a firms supply curve, not the industry supply curve. That doesn't show producer surplus.

I'm sorry, but first you're whole argument about perfect competition is based on something that perfect competition is. Please red even a basic microeconomics textbook to see that producer surplus is 0 in the long run. It's really not that hard to see, it's logical. If there are infinite firms, each has to produce at the lowest average cost, and all economic profits will be competed away. Thus P=MC=AC. Since a firm will never sell anything when AC>P in the long run, as it would lose money, there is no supply curve below that. Thus there is only one possible production point, and no producer surplus.

[Drogue]

Originally posted by Kidicious
Look at this one.

That's a firms supply curve, not the industry supply curve. That doesn't show producer surplus.

I'm sorry, but first you're whole argument about perfect competition is based on something that perfect competition is. Please red even a basic microeconomics textbook to see that producer surplus is 0 in the long run. It's really not that hard to see, it's logical. If there are infinite firms, each has to produce at the lowest average cost, and all economic profits will be competed away. Thus P=MC=AC. Since a firm will never sell anything when AC>P in the long run, as it would lose money, there is no supply curve below that. Thus there is only one possible production point, and no producer surplus.

Originally posted by Kidicious
Utility is value. I taken you haven't taken any history of economic thought courses yet. There's a good website to get historical arguments on value. Just search 'history of economic thought or something like that.'

Utility is not value, at least not in an economic definition. In economics, utility is the benefit from a good. Value is the monetary value of that utility.

Moreover, in economics, utility is ordinal, not cardinal, and thus cannot represent a value, just a set of preferences.

Yes, I've studied economic history, at least during the indistrial revolution and 20th century. Classical economic thought has generally been superceeded, including both Marx and Smith. A few theories still stand, but their definition of value isn't one of them. Value in economics is a monetary value.

If you want to argue philosophically, that utility should be what is refered to as value, then go ahead. That would just take out the monetary aspect, and I suspect is the crux of the matter. However if we're talking economics here, value is a monetary term.

[Kidlicious]

Originally posted by Drogue

No, you're wrong. If supply is below AC, the firm is losing money, and thus will shutdown. It's known as the shutdown condition. Please, if you want to discuss economics, at least make sure you're preliminary understanding is correct. Even my basic intro to microeconomics covered that.

The supply curve is only the MC curve above the AC curve. Hence, in PC, there is no supply curve above the price.

Absolutely not. The firm produces to a point where MC = MR. That's the point of profit maximization. That can be anywhere on the MC curve. Where the intersection occurs is at the price. MR = price for the competitive firm. If you assume that a firm will always produce where AC is lowest than you think a firm produces at the same level regardless of price, which is clearly wrong for obvious reasons.

That's a firms supply curve, not the industry supply curve. That doesn't show producer surplus.

No. It's a firms supply curve. That's why the demand curve is downward sloping. It does show producer surplus. I got that graph off the internet. They're all over the place. Do a google search for yourself.

I'm sorry, but first you're whole argument about perfect competition is based on something that perfect competition is. Please red even a basic microeconomics textbook to see that producer surplus is 0 in the long run. It's really not that hard to see, it's logical. If there are infinite firms, each has to produce at the lowest average cost, and all economic profits will be competed away. Thus P=MC=AC. Since a firm will never sell anything when AC>P in the long run, as it would lose money, there is no supply curve below that. Thus there is only one possible production point, and no producer surplus.

Huh? How can you have producer surplus in the short run, but not in the long run? It accumulates obviously. You really are making less sense as we go forward. That's not good.

[Kidlicious]

Originally posted by Drogue
Utility is not value, at least not in an economic definition. In economics, utility is the benefit from a good. Value is the monetary value of that utility.

Moreover, in economics, utility is ordinal, not cardinal, and thus cannot represent a value, just a set of preferences.

Yes, I've studied economic history, at least during the indistrial revolution and 20th century. Classical economic thought has generally been superceeded, including both Marx and Smith. A few theories still stand, but their definition of value isn't one of them. Value in economics is a monetary value.

If you want to argue philosophically, that utility should be what is refered to as value, then go ahead. That would just take out the monetary aspect, and I suspect is the crux of the matter. However if we're talking economics here, value is a monetary term.

You're just defining value as price, which is clearly wrong and doesn't make any sense. I think that I've shown that pretty well. If a hurricane wipes out half of the orange crop you would say that it created value because the price of oranges is higher. Do you make such a claim with a straight face?