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INFORMATION COSTS, PRICING, AND RESOURCE UNEMPLOYMENT

INFORMATION COSTS, PRICING, AND RESOURCE UNEMPLOYMENT Economic theory of exchange often appears to imply that demand changes induce instant wage and price adjustments to maintain full resource use. .But unemployment, queues, rationing, and idle resources refute any such implication. And macroeconomic theory does not explain why demand decreases cause unemployment rather than immediate wage and price adjustments in labor and nonhuman resources. Instead, administered prices, monopolies, minimum wage laws, union restrictions, and “natural” inflexibilities of wages and prices are invoked. This paper attempts to show that economic theory is capable of being formulated-consistently with each person acting as an individual utility, or wealth, maximizer without constraints imposed by competitors, and without conventions or taboos about wages or priceas to imply shortages, surpluses, unemployment, queues, idle resources, and nonprice rationing with price stability. The theory implies massive correlated ffuduations in employment of both labor and capital in response to aggregate demand decreascs-in a context of open market, individual utility maximizing behavior. The theory is general in that it applies to nonhuman goods as well as to human services. Though my primary motivation to explain “unemployed” resources arose from labor market behavior, the analysis is best exposited initially without special reference to labor m r e http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economic Inquiry Wiley

INFORMATION COSTS, PRICING, AND RESOURCE UNEMPLOYMENT

Alchian, Armen A.
Economic Inquiry , Volume 7 (2) – Jun 1, 1969
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References (16)

Publisher
Wiley
Copyright
Copyright © 1969 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0095-2583
eISSN
1465-7295
DOI
10.1111/j.1465-7295.1969.tb01469.x
Publisher site
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Abstract

Economic theory of exchange often appears to imply that demand changes induce instant wage and price adjustments to maintain full resource use. .But unemployment, queues, rationing, and idle resources refute any such implication. And macroeconomic theory does not explain why demand decreases cause unemployment rather than immediate wage and price adjustments in labor and nonhuman resources. Instead, administered prices, monopolies, minimum wage laws, union restrictions, and “natural” inflexibilities of wages and prices are invoked. This paper attempts to show that economic theory is capable of being formulated-consistently with each person acting as an individual utility, or wealth, maximizer without constraints imposed by competitors, and without conventions or taboos about wages or priceas to imply shortages, surpluses, unemployment, queues, idle resources, and nonprice rationing with price stability. The theory implies massive correlated ffuduations in employment of both labor and capital in response to aggregate demand decreascs-in a context of open market, individual utility maximizing behavior. The theory is general in that it applies to nonhuman goods as well as to human services. Though my primary motivation to explain “unemployed” resources arose from labor market behavior, the analysis is best exposited initially without special reference to labor m r e

Journal

Economic Inquiry – Wiley

Published: Jun 1, 1969

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