Economics ideas: Problems with utility.

[Khayembii Communique]

Who do you think they are set by?

The constraints of the market. One doesn't simply up and decide to sell a product at x price while the rest of the market follows behind. Obviously one is going to try to sell a product at the greatest effective price in order to make the largest profit, but simply saying that price is based on utility is incorrect. Factors like competition and the cost of production, for example, provide us with a much better understanding of the determination of market prices than simply stating that they are the cause of "utility".

 

[Stinger]

provide us with a much better understanding of the determination of market prices than simply stating that they are the cause of "utility".

No one is saying "simply" but in the end that is what the seller is trying to create to overcome everything you mentioned in order to maximize his profits. I have to do it on a daily basis.

 

[Panache]

By the producers on the basis of the utility and value they believe the buyer perceives for his product and the monetary value of that. Then it is adjusted accordingly by their private selfish acts.

So if a product is useful enough that it could easily bring them $15, would they sell it for only $10?

If they get get more usefulness out of $20 than they can out of their product, will they not sell the product for $20?

The producers are naturally the original vendor, and thus the price that the producers ask for a product is a measure of the relative utility of that product to them as compared with the relative utility of the amount that they are asking for it.

 

[Panache]

The constraints of the market. One doesn't simply up and decide to sell a product at x price while the rest of the market follows behind. Obviously one is going to try to sell a product at the greatest effective price in order to make the largest profit, but simply saying that price is based on utility is incorrect. Factors like competition and the cost of production, for example, provide us with a much better understanding of the determination of market prices than simply stating that they are the cause of "utility".

Factors like competition and the cost of production are part of what makes utility.

In fact, the cost of production is another price, and thus another measure of utility.

Someone decides that the benefit of a person's labour to them is worth more than the cost of that labour. The price of the labour is the salary of the labourer and is simply a measurement of the utility of the labour to the labourer, who is in this case the vendor of the labour.

The greatest effective price at which a vendor can successfully sell a product often determines its utility. Clearly other factors con contribute.

For example the greatest effective price I can get for my home is less useful to me than my home is, because I couldn't use that money to get a home that I like better, or if I could it would take more effort on my part than would be worth going through for.

If the greatest effective price for my home was $700,000 I would sell it in a heartbeat because the $700K would be more useful to me.

 

[Stinger]

So if a product is useful enough that it could easily bring them $15, would they sell it for only $10?

That would go against maximizing profits why would they?

If they get get more usefulness out of $20 than they can out of their product, will they not sell the product for $20?

You'll have to clarify that one.

The producers are naturally the original vendor, and thus the price that the producers ask for a product is a measure of the relative utility of that product to them

No to the buyer. If you go and try to get capital to start a business to provide a product you better be able to make a good case for what your customers will pay not what you would pay.

as compared with the relative utility of the amount that they are asking for it.

And the buyer will make that decission. If the seller has done their homework they will be close. If they underestimate then they can adjust their price up until they reach a point of diminishing returns ie lost sales and or less profit. If they overestimate they may be in trouble.

 

[Stinger]

If the greatest effective price for my home was $700,000 I would sell it in a heartbeat because the $700K would be more useful to me.

And the price difference between to identical house due to on being 5 minutes from your work and shopping and entertainment and the other being 90 minutes will effect the utility of the former and thus it's price which will be much lower.

 

[Panache]

That would go against maximizing profits why would they?

They wouldn't. Thats the point. The utility of the product exceeds $10, so they won't sell it for $10.

You'll have to clarify that one.

If you want to sell a product, and you can't sell it for more than $20, and someone offers you $20, wouldn't you sell the product for $20?

No to the buyer. If you go and try to get capital to start a business to provide a product you better be able to make a good case for what your customers will pay not what you would pay.

What the buyer is willing to pay is a factor in determining the utility of a product to a vendor, but it is ultimately the vendor who determines the price of the product.

If, as a buyer, I decide to buy an iphone for $5, does that mean that an iphone vendor has to sell it to me for $5? Obviously not.

But what if I am not willing to pay more than $5? The vendor still doesn't have to sell it to me. The vendor always determines the price at which they are willing to part with their product. They try to adjust that price to maximize their profits, but the utility of the product to the vendor is ultimately the deciding factor.

 

[Khayembii Communique]

Factors like competition and the cost of production are part of what makes utility.

In fact, the cost of production is another price, and thus another measure of utility.

That was my entire point. "Utility" is simply a blanket statement that encompasses all of these factors; it means nothing in and of itself.

 

[Stinger]

Quote:
That would go against maximizing profits why would they?

They wouldn't. Thats the point. The utility of the product exceeds $10, so they won't sell it for $10.

If the utility to the buyer is more than the utility of the $10 in their pocket then the seller can maximize profits by charging more.

If you want to sell a product, and you can't sell it for more than $20, and someone offers you $20, wouldn't you sell the product for $20?

If someone offers me more than $20 then I can sell it for more than $20 dollars, the utility of the product is more to them than the utility of the $20 in there pocket.

What the buyer is willing to pay is a factor in determining the utility of a product to a vendor, but it is ultimately the vendor who determines the price of the product.

And if no buyers agree that the product offers more utility to them than the value of the price he will probably determine another price.

If, as a buyer, I decide to buy an iphone for $5, does that mean that an iphone vendor has to sell it to me for $5? Obviously not.

Obviously. But if you believe it's utility is worth $100 plus another $50 per month for service do you believe they will sell it to you for $5?

But what if I am not willing to pay more than $5? The vendor still doesn't have to sell it to me. The vendor always determines the price at which they are willing to part with their product.

As I said in my first post.

Originally Posted by Panache
Who do you think they are set by?


Me>> By the producers on the basis of the utility and value they believe the buyer perceives for his product and the monetary value of that. Then it is adjusted accordingly by their private selfish acts.

They try to adjust that price to maximize their profits, but the utility of the product to the vendor is ultimately the deciding factor.

No it will ultimately be set by what the market will pay, the utility it sees in the product. The only utility the product has to the producer is his ability to exchange it for someone else's money. In my product, we set a list price and discount it from there based on what my customers are willing to pay, and we test that upper limit constantly, but we are willing to sell it for less. Usually it is a matter that while we are more expensive we last longer. I do the hypothetical math to determine at what point I offer the best value to him, enough of a value he will switch to me. And try not to leave money on the table. My price is based on what utility I judge it offers him not me, and hope I did my homework.

 

[Feela]

Feela, it seems that you are looking for an objective economic theory which discusses these matters. Have you ever looked into the labour theory of value, or, more specifically, Marxist economics? If you're interested in learning about this sort of thing I'd highly recommend Marx's Kapital. Although this work is incredibly dense and in my opinion hard to sit down and read too much, it is the most indepth and comprehensive work which best describes the theory. If you'd rather sit down and read a book in a few days that discusses the general aspects of the theory, instead of taking months to read Kapital, then I would suggest reading Marx's Kapital for Beginners by Dave Smith and Phil Evans. In case you don't want to look for it or buy it, I've written it up and posted it online (yes, it's that short; it's one of those "______ for Beginners" books that are made with cartoons and comics and whatnot). You can find it here.

I'm very familiar with the LTV and although I prefer institutionalist economics I believe it is far superior to marginalism.

Really I was just commenting on the tautology and unproven assertions at the very foundation of marginalism.

 

[Feela]

Said the pot to the kettle.




You seem very frustrated. I can understand. Its sometimes hard to accept that you are wrong. I wouldn't expect you to respond to things to which you have no response.



The point you don't seem to grasp is that price isn't the relative utility in society adjusted for scarcity. So obviously this can't be proven. Nice strawman.

Price measures the relative utility of the product to the vendor. If I am selling an apple for $1, it is because $1 has greater utility to me than an apple, whereas $0.99 has less utility to me than an apple.

Nothing needs to be adjusted for scarcity, because scarcity is already factored into the utility of the apple. The reason that $0.99 has less utility to me than the apple is because the apple is scarce enough that I could use my apple to obtain $1, whereas $0.99 is not scarce enough that I could use it to obtain $1.

See?



Let me break it down for you. You seem to be struggling with the basics here.

I have a car. The car is useful to me. It is more useful to me than $5000. If somone offers me $5000 for my car, I tell them to forget it.

My car is less useful to me than $50,000. If somone offers me $50,000 for my car I take their money and give them my car.

Thus the price of the car is always going to be determined by its usefulness to me, relative to the usefulness of the money to me.

Okay if you can't grasp basic logic and realise that distance and utility are very different and that what you are saying is completely irrelevant I'm not going to waste my time on you.

You have failed to prove that utility determines price.

 

[Feela]

i'm not a trained economist. secondly the assumptions are not bogus in many situations. Assuming that the consumers are rational, in the sense they are utility maximizing individuals does seem to roughly correlate to real-life data.

This is incorrect, no pyschological believes people are rational in the economic way and they do not have metaphysical utility preferences, nor the ability to compute endless amounts of products to maximise utility. Most people do alot through habit.

Assumptions on free flowing information is good enough when looking at certain industries. Of course it wouldn't work when looking at industries such as health insurance or labor markets. An economist has to analyze when the assumption is significant and in what situation it falls through.

No they have to choose the assumptions which help the model fit together.

Competitive equilibrium has given us a lot of understanding of historical markets and industries.

No it hasn't, it is a travesty of reality. It has been shown time and again that relaxing the patently and absurdly unrealistic assumptions that the model falls apart.

So no, its not like assuming there is no gravity, because the assumptions were not just thrown in there.

Yes they were, look at the idea of the u -shaped cost curve.

"A. C. Pigou, a loyal disciple of Alfred Marshall and quite innocent of any knowledge of industry. He therefore constructed a U-shaped average cost curve for a firm, showing economies of scale up to a certain size and rising costs beyond it." [Joan Robinson, Collected Economic Papers, vol. 5, p. 11

Many of the assumptions were simply added to prevent the model collapsing and have even been proved empirically incorrect like the one mentioned above.

Utility theory is based on the very plausible assumptions on human nature.

Actually it is based on pyschological hedonism evolved from Benthamite utilitarianism which is embraced by no psychologists and few philosophers.

Looking at the individual, it would be very difficult to witness the conclusions, but when you look at systemic behaviour of a lot of economic players, then the market models start looking more and more plausible.

I fail to see this. I don't perfect competition, Walras' auctioneer, all transactions taking place at one time for ever etc etc

Economics has increasing become an intellectual games played for its own sake and not for its practical consequences. Economists have gradually converted the subject into a sort of social mathematics in which analytical rigor as understood in math departments is everything and empirical relevance (as understood in physics departments) is nothing . . . general equilibrium theory . . . using economic terms like 'prices', 'quantities', 'factors of production,' and so on, but that nevertheless is clearly and even scandalously unrepresentative of any recognisable economic system. . .

"Perfect competition never did exist and never could exist because, even when firms are small, they do not just take the price but strive to make the price. All the current textbooks say as much, but then immediately go on to say that the 'cloud-cuckoo' fantasyland of perfect competition is the benchmark against which we may say something significant about real-world competition . . . But how can an idealised state of perfection be a benchmark when we are never told how to measure the gap between it and real-world competition? It is implied that all real-world competition is 'approximately' like perfect competition, but the degree of the approximation is never specified, even vaguely . . .

"Think of the following typical assumptions: perfectly infallible, utterly omniscient, infinitely long-lived identical consumers; zero transaction costs; complete markets for all time-stated claims for all conceivable events, no trading of any kind at disequilibrium prices; infinitely rapid velocities of prices and quantities; no radical, incalculable uncertainty in real time but only probabilistically calculable risk in logical time; only linearly homogeneous production functions; no technical progress requiring embodied capital investment, and so on, and so on -- all these are not just unrealistic but also unrobust assumptions. And yet they figure critically in leading economic theories."

Mark Blaug

 

[Billo_Really]

I got a C in economics.

 

[Khayembii Communique]

There's numerous quite obvious flaws in "modern" subjectivist economics, actually, and they're not that hard to discover if you actually look for them. A friend of mine found this one out one night just ****ing around with MC/MR curves.

Okey dokey, first some definitions:

Definitions
R = P*Q = revenue
P = Price
Q = Quantity of goods sold
MR = dR/dQ = marginal revenue
MC = marginal cost

The problem

Bourgeois economics says that profit is maximized when MC = MR. Well, MR is treated as a constant with respect to Q (i.e. dMR/dQ = 0 so MR=5 is acceptable whereas MR = 3Q is not).

Now, if we simply go from:

1. MR = dR/dQ

to

2. Integral MR dQ = Integral dR = R

we find that since the spectrum of Q is discrete we switch to the Riemann sum:

3. SUM^{Q}_{i=0} MR deltaQ_{i} = R

or equivalently:

4. MR*(Q(Q+1)/2) = R

since MR is constant, we can pull it out in front of the sum and use gauss' rule[1].

Multiply both sides through and we get:

5. MR = 2R/(Q(Q+1))

And then recall from bourgeois economics the rule:

6. MR = dR/dQ = P + QdP/dQ

and set it equal to equation 5 to get:

7. 2R/(Q(Q+1)) = P + QdP/dQ
8. 2R/(Q(Q+1)) - P = QdP/dQ

Now bourgeois economists will tell you that dP/dQ = 0 [1] this is of course in a competitive economy (in monopoly situations, dP/dQ < 0).

Thus we can simply set equation 8 to zero (Q * 0 = 0) and then add P to both sides.

9. 2R/(Q(Q+1)) = P = R/Q

Divide both sides by R/Q:

10. 2/(Q+1) = 1

which holds if and only if Q=1 which means for any output greater than one commodity the entire kit and kaboodle falls to pieces. (if you plug Q=1 into equation 10 you get 2/2 = 1 everything else would not equal 1).

Worse, when it's not perfect competition and we've got a monopoly, then we end up with:

11. 2/(Q+1) < 1

and Q is an integer value! That means that the biggest value of Q is -2.

----------------------------
Footnotes:
[1] The spectrum of the quantity of goods produced is discrete mathematically. It's treated such as far as derivatives are concerned, so I argue that we can treat that way as far as integrals are concerned too.

Actually if you then calculate out the revenue from equation 2 with the quantity from equation 10, you get:

A) integral MR dQ = Integral 2R/(Q(Q+1)) dQ

and recall R/Q = P

B) integral 2R/(Q(Q+1)) dQ = integral 2P/(Q+1) dQ = 2P*ln(Q+1)

making it a definite integral from 0 to 1 we get:

C) 2P*(ln(2)-ln(1)) = 1.38629436*P.

P is an independent variable interestingly enough and can be set to anything. But you're still dealing with Q=1 which is patently absurd in and of itself.

[edit]: Worse we have a contradiction on our hands! ohmy.gif

By definition, R = P*Q, but by equation (B) (which is an over-estimation) R = 2*P*ln(Q+1) but this would mean that Q = 2*ln(Q+1); we know that Q=0,1. The only way that we can recover consistency is by having the total amount produced be 0.

Important Information on a Mathematical Error

No it doesn't change the criticism, it is actually more damning than before (cheers to Zempano for catching it!).

Equation 3 is a double integral of MR, thus taking the Q integral of R and setting the two to be equal we get instead (take the Q integral of the right hand side of 9):

A) 2R/(Q(Q+1)) = R

then divide both sides by R and multiply by Q(Q+1)

B) 2 = Q(Q+1)

and then this holds iff Q=1. The logic remained invariant interestingly enough.

Actually doing some more math, it's relatively funny there's another contradiction.

By definition R=P*Q.

MR*Q(Q+1) = 2* Integral RdQ

take the Q derivative of both sides (recall Q is discrete not continuous so we use the limit definition of the derivative):

MR*[(Q+1)(Q+2) - Q(Q+1)] = 2*R

and rearrange the parenthetic terms:

MR*[(Q+1)(Q+2-Q)] = MR*[2*(Q+1)] = 2R

divide both sides by two:

MR(Q+1) = R

recall MR=P in this ideal state, plug it in and also recall R=P*Q

P*(Q+1) = R = P*Q

divide both sides by P:

Q+1 = Q

and you get 1=0.

:lol: :lol:

 

[nkgupta80]

This is incorrect, no pyschological believes people are rational in the economic way and they do not have metaphysical utility preferences, nor the ability to compute endless amounts of products to maximise utility. Most people do alot through habit.

well im not saying that people actually get out their calculators to calculate the utility. Neither does a bowling ball calculate the physical trajectories before it hits the bowling pins. Utility is just a rough measure, a simple model for human behaviour. And, when it comes to basic day to day purchases you follow the utility model roughly (given the information available to you).

No they have to choose the assumptions which help the model fit together.

No... if you look at the work of any scientist, any mathematician, any economist, assumptions come first. Model comes second. Economists examined human behavour. Classical economists saw that people seem to follow the behaviours concluded by utility theory. So they used that as a basis for their SIMPLE models.

No it hasn't, it is a travesty of reality. It has been shown time and again that relaxing the patently and absurdly unrealistic assumptions that the model falls apart.

hmm i'm sure if we examined the quantity demanded of a competitive product as its price went up, it would be surely decreasing. Of course we're bantering, we should be posting evidence of this.




Yes they were, look at the idea of the u -shaped cost curve.

"A. C. Pigou, a loyal disciple of Alfred Marshall and quite innocent of any knowledge of industry. He therefore constructed a U-shaped average cost curve for a firm, showing economies of scale up to a certain size and rising costs beyond it." [Joan Robinson, Collected Economic Papers, vol. 5, p. 11

i don't know of this paper by Alfred Marshall. But if this is a peer-reviewed paper accepted by as mainstream economic theory, BACKED by observation of real-life industry data, then his theory has got a point, regardless of the way he came up with it.

Many of the assumptions were simply added to prevent the model collapsing and have even been proved empirically incorrect like the one mentioned above.

Actually it is based on pyschological hedonism evolved from Benthamite utilitarianism which is embraced by no psychologists and few philosophers.

utility theory is not psychological hedonism. Usefulness is very abstract as defined in utility theory. Think about it. If i gave you a choice of product, you will choose the one that satisfies your desires. I may choose a flash looking sony vaio, but may weigh the aesthetic utility i gain from that vaio with the robustness of an IBM thinkpad.

I may weigh the utility I get from an SUV with the loss of usefulness i get since it is a gas-guzzling vehicle.

I fail to see this. I don't perfect competition, Walras' auctioneer, all transactions taking place at one time for ever etc etc

as for your post and citation on the short-comings of economic theory, i believe most of the economic theory these days deals with imperfect markets, ranging from oligopolies to monopolies where firms do set the price. Perfect competition is seen as the theoretical convergence that a market system will strive towards as more players enter the market. However when game theory stuff plays in, and we have governments intervene as a market power, or monopolies control supplies and hence the price, you get imperfect competition.

Most economic theory deals with imperfect competition. Now don't start telling me that competition in the real world is bogus too.....


See what you raen't getting about economics and even science (physics, chemistry, biology) in general is that once you start working with complex phenomena, you don't go about making an exhaustive simulation of every single factor possible. Its just impossible. The process, rather, goes as follows:

You ask a question, and then make grossly simplified models to help you understand the phenomena at a very simple level.

THEN you ask yourself, now that this assumption doesn't work, how does my model change (Sensitivity analysis).

With the advent of more and more powerful computers, we're able to make more and more complex models that have increasingly more and more relevance to real world events.

So to recap, we start with simplifying models to give us a very base understanding of how the world could work. And then we slowly break assumptions, add factors, simulate, examine data to refine, completely break, or make new models.

 

[Feela]

There's numerous quite obvious flaws in "modern" subjectivist economics, actually, and they're not that hard to discover if you actually look for them. A friend of mine found this one out one night just ****ing around with MC/MR curves.

Oh there are many, many flaws. Neoclassical economics is easy to critique even for those of us without the maths and the perfect knowledge of the post-graduate levels. Austrian economics is harder mainly due to the general lack of literature.

And this friend wouldn't be Comrade Red would it?

If you are interested in critiquing marginalism like I am, I recommend Steve Keen's site and book Debunking economics.

 

[Feela]

well im not saying that people actually get out their calculators to calculate the utility. Neither does a bowling ball calculate the physical trajectories before it hits the bowling pins. Utility is just a rough measure, a simple model for human behaviour. And, when it comes to basic day to day purchases you follow the utility model roughly (given the information available to you).

You're not offering proof that utility determines price.

No... if you look at the work of any scientist, any mathematician, any economist, assumptions come first. Model comes second. Economists examined human behavour. Classical economists saw that people seem to follow the behaviours concluded by utility theory. So they used that as a basis for their SIMPLE models.

Classical economists did not have the same absurd assumptionsof neoclassical economics nor did they believe price for most objects was determined by utility. They were far better than the neoclassicals. And the assumptions used by neoclassical economics are not the same as any scientist as I said it would be like a plane designer assuming away gravity, these are what Steve Keen called "domain assumptions", ie they are central to the model.

hmm i'm sure if we examined the quantity demanded of a competitive product as its price went up, it would be surely decreasing. Of course we're bantering, we should be posting evidence of this.

First I thought we were talking of the general equilibirum theory? Secondly what you state above is different from a demand curve, a demand curve is a static, linear analysis which has little to do with the reality of a dynamic, real time world.


Yes they were, look at the idea of the u -shaped cost curve.

i don't know of this paper by Alfred Marshall. But if this is a peer-reviewed paper accepted by as mainstream economic theory, BACKED by observation of real-life industry data, then his theory has got a point, regardless of the way he came up with it.

Firslty peer-reviewed means nothing as it is reviewed by neoclassical economists and they don't care if it is backed up by real world data as this wasnt', it has been disproved in numerous studies. Secondly this was Pigou not Marshall and it was done a 100 or so years ago.

utility theory is not psychological hedonism. Usefulness is very abstract as defined in utility theory. Think about it. If i gave you a choice of product, you will choose the one that satisfies your desires. I may choose a flash looking sony vaio, but may weigh the aesthetic utility i gain from that vaio with the robustness of an IBM thinkpad.

This is not what the theory of human behaviour used is about, it has assumptions like unlimited computing ability, the ability to create a preference list of all possible products I know in all possible quantities and bundles.

I may weigh the utility I get from an SUV with the loss of usefulness i get since it is a gas-guzzling vehicle.

Weigh it against what? According to the model you should be able to do it for every single possible bundle of goods you know of.


as for your post and citation on the short-comings of economic theory, i believe most of the economic theory these days deals with imperfect markets, ranging from oligopolies to monopolies where firms do set the price. Perfect competition is seen as the theoretical convergence that a market system will strive towards as more players enter the market. However when game theory stuff plays in, and we have governments intervene as a market power, or monopolies control supplies and hence the price, you get imperfect competition.

Most economic theory deals with imperfect competition. Now don't start telling me that competition in the real world is bogus too.....[/QUOTE]This is incorrect, the centre of mainstream micro-economics is general equilibrium theory which uses perfect competition and it has been shown that relaxing the assumptions of this theory quickly makes it useless.

See what you raen't getting about economics and even science (physics, chemistry, biology) in general is that once you start working with complex phenomena, you don't go about making an exhaustive simulation of every single factor possible. Its just impossible. The process, rather, goes as follows:

You ask a question, and then make grossly simplified models to help you understand the phenomena at a very simple level.

THEN you ask yourself, now that this assumption doesn't work, how does my model change (Sensitivity analysis).

With the advent of more and more powerful computers, we're able to make more and more complex models that have increasingly more and more relevance to real world events.

So to recap, we start with simplifying models to give us a very base understanding of how the world could work. And then we slowly break assumptions, add factors, simulate, examine data to refine, completely break, or make new models.

What you don't get is that the assumptions used in mainstream economics are not like science, they are absurd and unrealistic and central to many of the models.

 

[Panache]

Okay if you can't grasp basic logic and realise that distance and utility are very different and that what you are saying is completely irrelevant I'm not going to waste my time on you.

If you can't grasp basic logic and realize that people don't generally trade something that is very useful to them for something that is less useful to them, and that what you sare saying is completely irrellevant, then I shall continue to waste my time on you to demonstrate to everyone else how feeble your position is.

You have failed to prove that utility determines price.

And you have failed to prove that it doesn't.

Furthermore you have failed to prove that a your distance from something determines how many feet away from it you are, which is essentially what you are asking.

You can do it with any quantitative measurement.

Prove that the volume of container determines how many gallons it can hold.

Prove that the duration of a ballet determines how many minutes it lasts.

Prove that the speed of a car determines how many miles per hour it travels.

 

[SFLRN]

Perhaps this will provide a clearer picture of what I have been previously arguing.
Definitions
Utility: The satisfaction people get from something.
Price: How much individuals pay for a product
First assumption: People will generally seek to better their own interests
From this we derive our second assumption: People will not, on an aggregate level, consistently incur certain costs to attain something that would not give them a benefit that is larger than the costs they incurred to get that item.
Third Assumption: Sellers can only sell a product at a price at which someone is willing to pay for it, provided it is in a market in which coercion is mostly absent, and where calculations for the utility of sustaining one’s physical existence are not widely used (these are usually societys with massive starvation, in which case a loaf of bread might sustain physical existence, in said case, calculating utility to any range is more difficult).
Therefore: Producers can, in the long-term, only charge prices for a product that will exceed the cost consumers incur, this price will also have to increase their personal utility (by providing them with larger benefits than the costs they incurred) for them to stay in the industry for any significant amount of time.
Therefore, price is, on the whole, related to utility in that it must either be equal to utility or be less than the utility of the product. (U= utility, p= price).
Moreover, price, on the whole, will come closer to the actual utility because producers desire to increase profits and to offset costs related to scarcity. Therefore, when the price of labor increases for a product producers will raise prices. If they maintain the same consumer market then clearly utility is still larger than price. However, if they lose a signficant amount of their consumer group, their price has exceeded utility and will be forced to be lowered in order for them to sell the product in the future. Hopefully this clarifies some of the previous statements. This is just a rough draft and will be revised based off of the suggestions and critiques of members taking an opposing side to the idea that price is a measure of utility in the broader economy.
Side-note: Utility is an abstract thing, and varies from one person to another (varies in that different people receive utility from different things). Price, is a more concretely to give one an idea of utility, not to give an approximate value. For example, if one were to measure the wingspan of an eagle they might say its wingspan is one meter. However, that measure is not perfectly exact. The measure can leave of atomic particles that are just beyond the tip of the ruler, yet we still use the measure because it comes close to the actual distance. Similarly, price does not perfectly measure, or come close to utility, it is only a measure that gives a general estimate on the utility of something, and it is most useful for comparative purposes. A Porsche is more expensive than a Camry, this suggests, that a Porsche increases utility more than a Camry, for the involved consumers that would be interested in buying either car, that does not mean the price of a Porsche will give you an exact measure of utility; it does mean that the price helps economists compare how valuable one thing is compared to another. Since value is somewhat subjective, some level of aggregate comparison is needed to get a general picture on utility.
Lastly, the importance of a theory designed to predict is whether or not its predictions are proved to be quite close to realty. The importance of a theory designed to solve a problem, is how it helps us analyze, and solve a problem. From those theories one can get predictive theories.

 

[nkgupta80]

I hope you don't get the idea that I think these assumptions ARE reality. I don't, and neither do economists. However, in the pursuit of knowledge, people need certain methodologies to go about understanding the world. In a way economics is so complicated because we're dealing with human/environment interactions. We are bound to have gross errors in our forecasting and analysis. However, this is how we increase our knowledge -- By making models, breaking them, retesting them. You are in a way right to say that the models are based on unrealistic assumptions. however, each model has given some insight into how the world functions, and those assumptions were precisely made to see what kind of behaviour you would get. If you examine the field of econometrics, a lot of computer data analysis has both shown anomalies in our picture of market economies and helped prove some conclusions based on our economic models.


Considering economics is a very young and complicated study, and with the advent of computers, we should be making bigger insights into economics, and how systems of people actually behave.

 

[Feela]

I hope you don't get the idea that I think these assumptions ARE reality. I don't, and neither do economists. However, in the pursuit of knowledge, people need certain methodologies to go about understanding the world. In a way economics is so complicated because we're dealing with human/environment interactions. We are bound to have gross errors in our forecasting and analysis. However, this is how we increase our knowledge -- By making models, breaking them, retesting them. You are in a way right to say that the models are based on unrealistic assumptions. however, each model has given some insight into how the world functions, and those assumptions were precisely made to see what kind of behaviour you would get. If you examine the field of econometrics, a lot of computer data analysis has both shown anomalies in our picture of market economies and helped prove some conclusions based on our economic models

Well econometrics is macroeconomics and the macroeconomics models are rather different to the micro ones, a little more realistic mainly thanks to the extremely bastardised influence of Keynes more than neoclassical economics itself.

Anyway I think you give far more credit than they are worth to these assumptions.

SFLRN I'll answer you later, Panache go away you have no grasp of this or even basic logic it seems.

 

[Panache]

Panache go away you have no grasp of this or even basic logic it seems.

You go away. Let the adults talk.

Or better yet, since you are such an expert on logic, how about you write out a truth table to demonstrate where my logic falls short?

Here, I will draw out the reasoning for you so that it will be easy to highlight what you consider to be an obvious error.

My assertion:

Price is the measurement of utility.

Your contention against this assertion (in your own words):

if utility cannot be measured independent of price then it cannot be proved price measures it

So according to you

A --> B

Where A = Price is the measurement of utility and B = the ability to measure utility independent of price.

You go on to say

-B
.'. -A

This forms the valid the valid rule of derivation, modus tollens.

In response to this I challenged your initial premise that A --> B

You have been unable to respond to this challenge upon what was clearly a poorly reasoned premise, and instead have opted only for ad-hominim responses which, ironically, are a logically fallacious method of reasoning.

Basic logic suggests that when a measureable attribute is quantitatively defined, the quantiative value is the measurement of that attribute by virtue of being a quantitative definition of it, and measurement of an attribute outside of quantitative definition is not prerequisite to being able to define that attribute in terms of its quantiative definition.

This basic logic seems to have escaped you, and you insist that unless you can measure something wihout measuring it then there is no reason to believe that the measurement has anything to do with the attribute whih it is designed to measure. This is sheer absurdity.

Its like saying that unless velocity can be measured independently of both time and distance, that the time it take to go a certain distance is no indication of velocity.

So how is that logical? You can draw me a Venn Diagram and explain it to me with Boolean Symbolism if you like.

 

[Feela]

You go away. Let the adults talk.

Or better yet, since you are such an expert on logic, how about you write out a truth table to demonstrate where my logic falls short?

Well I told you to got away and yet you continue to post.

Have you not wondered why no one else have not backed you up?

It is because your arguments are silly on the face of it and I have told you how. If you can't grasp this I'm not going to waste my time.

Utility is subjective, distance is objective to compare them is asinine. A much better analogy is something like carbon 14 dating, it can be claimed that its depletion measures dating but this has to be proved independently before it can be used to date things.

 

[nkgupta80]

Well econometrics is macroeconomics and the macroeconomics models are rather different to the micro ones, a little more realistic mainly thanks to the extremely bastardised influence of Keynes more than neoclassical economics itself.

Anyway I think you give far more credit than they are worth to these assumptions.

SFLRN I'll answer you later, Panache go away you have no grasp of this or even basic logic it seems.

but microeconomics theory contributes to todays microeconomic theory.

Secondly, if you don't give credit to the assumptions, then logically all the models don't mean anything. hjowever, as i said before, they've given economists insight into how systems behave given these conditions.

 

[Panache]

Well I told you to got away and yet you continue to post.

I pointed out your logical fallacies and yet you continue to make them.

Have you not wondered why no one else have not backed you up?

As opposed to all the hordes of people flocking to back you up?

But if support makes such a difference to you, look at post #48.

It is because your arguments are silly on the face of it and I have told you how. If you can't grasp this I'm not going to waste my time.

What is silly is that you can't understand that people won't exchange something that has a lot of utility to them for something that has less utility to them.

Utility is subjective, distance is objective to compare them is asinine. A much better analogy is something like carbon 14 dating, it can be claimed that its depletion measures dating but this has to be proved independently before it can be used to date things.

How is that a better analogy?

Lets try this another way...

I have a cow. I am willing to trade you my cow for two of your sheep, and not one sheep less.

This means that the price of my cow is 2 sheep. This is a quantitative measurement. The value is 2 and the unit is sheep. What does this measurement gauge?