Critique Of Keynes By John Maynard Keynes
Critiques of Keynes by Hayek (political), Pigou (theoretical) and Friedman (empirical).
In his general theory of employment, interest and money, John Maynard Keynes argued that crisis and instability in the market cannot be sufficiently be mitigated by free market forces. According to his theory, full employment cannot be achieved by the competitive forces in the market. What this implied is that the market needed a third hand of the government to correctly fix the volatilities in the market to stabilize employment, interest rate and money supply. According to Keynes, the primary cause of the global economic crisis in the year 1929 was imperfections in the market and that the crisis was human-made.
The general theory argues that …show more content…
He argues that there is no sufficient empirical content in the Marshallian context and it does therefore do not hold on any strong base. Sraffa based his argument on the fact that the continually rising supply curve by the Marshallian economics was not real and it only represents a hypothetical case. He argued that the fact that there is constant returns, only horizontal supply curve is reasonably real. It is only in perfect circumstances that there is a possibility of a continuously rising supply curve. Because of the imperfections in the market, there is a high possibility of a horizontal supply curve due to the element of constant …show more content…
For example, the firm uses the cost of material, labor, overheads and selling and administration costs as a basis of setting their prices. With the costs available, the firms can now create the profit margins so as to appropriately set their prices. The formula for full costing model is (Total Production cost+ Selling and administration cost + markup)/number of units to sell. The pricing model is usually applied when there is a known demand and when there is specific requirement by customers.
Full-Cost Price model is a model that has been developed against the modern economics model of Average-Cost-Pricing. In this model, price is set based on the average-cost principle.
Price=AVC+GPM=AC. Where AVC is the average variable cost and GPM is the gross profit margin. The average-cost-pricing is aimed at making sure that the firm achieves its long-run profit maximization. Unlike average-costing model, full-cost pricing model is designed in a way that makes sure that the firm is in making profits instantly and periodically. The average-cost pricing model focuses on the low and high seasons in the market hence making it much