How Markets Work
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How Markets Work

Supply, Demand and the ‘Real World’

Robert E. Prasch

An accessible and enjoyable look at the way the market REALLY works! How Markets Work presents a new and refreshing introduction to elementary economics. The venerable theory of supply and demand is reconstituted upon plausible and defensible assumptions concerning human nature, the law, and the facts of everyday life – in short – the ‘Real World’. The message is that markets differ in ways that matter. Starting with a brief survey of property and contract law, the lectures develop several ‘ideal types’ of markets – such as credit, assets, and labor – while illuminating the similarities and differences among them. Care has been taken to ensure that the reformulations presented are accessible to students and compatible with a variety of non-mainstream traditions in economic thought.
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Chapter: Lecture VI: Labor market dynamics when motivation is a consideration

Robert E. Prasch


LECTURE VI Labor market dynamics when motivation is a consideration The previous lecture argued that labor features several essential and distinguishing characteristics. These collectively imply that the labor market does not function in a manner that allows for simple analogies to other kinds of markets. By taking such characteristics seriously it was demonstrated that the dynamics of low-wage labor markets are different from those for simple commodities. Moreover, the theoretical modifications that follow are sufficiently important to change our understanding of what constitutes plausible or defensible labor market policies. One of the new assumptions introduced above was the proposition that most people, lacking the advantages of inheritance or accumulated wealth, must work to maintain themselves and their dependents. As such, most people must enter the labor market to access the income required to obtain those items that are necessary to function in society. As was discussed, in those cases where, for any of a host of reasons, a person or family finds themselves on the margins of the workforce, without savings or substantial employment opportunities, the market can operate in perverse and detrimental ways. Yet, from the perspective of business accounting, it is equally undeniable that the wages of labor represent a cost. Such a perspective is in clear contrast to that of employees for whom wages represent a clear benefit – their income. It follows that changes in wages have different implications for those on either side of the negotiation. It is well-known, and no...

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