History and development of value theory
Microeconomic theories--The value of a specific item
theories focus upon supply as the basic determinant of value--The cost of
production is then the only determining factor of value. Cost-depreciation approach.
(Marginal utility) theories focus upon demand as the determinant of value. Thus value is the utility derived from the
latest consumer. Income-capitalization
equilibrium theories focus upon the balance between supply and demand. Sales-comparison approach.
theories suggest the wealth of an area is determined by its ability to produce
an export surplus. This has been
refuted by the theories of comparative advantage that have shown that areas
which focus their production on items which it can produce more efficiently
enjoy superior economic health.
(Agriculturalism) believe that self-sufficiency with minimum government
intervention is the key to economic prosperity. Laissez faire (Conservatives)
Macroeconomic theories (cont.)
theories believe that economic health cannot be achieved without substantial
government intervention because of greed. (Liberals)
argued that people do not always consume enough by themselves to insure a
healthy economy. Consequently the
government should use fiscal policy to stimulate the economy in bad times.
Money and the value concept
u Real Prices