PRICE THEORY (MPT) MICROECONOMICS
price theory (MPT) can be used to explain how total income is shared
among those who provide labour, capital and land to produce goods.
With the development of MPT many economists began to distinguish
between price as an objectively determined fact and value, a term
according to economists (but not valuers) that has ethical and
political connotations outside the general province of economics. For
example, benefit cost analysis (BCA).
basic concept of MPT is that at any given market price the amount of
a good produced and offered for sale and the amount of that good
purchased will equalise. The schedule of amounts that will be offered
for sale at various prices is called the supply schedule and
the schedule of amounts that will be purchased at various prices is
called the demand schedule.
are several assumptions underlying the theory of demand:
the consumer has adequate knowledge of the goods.
the consumer will use this information to maximise
attainment of the desired ends.
following factors determine whether a consumer is willing and able to
purchase a given quantity of a good within a given period:
is inversely related to price. For example, if residential houses in
a certain suburb fall in price, the quantity demanded will increase.
incomes usually mean that more units of a good will be purchased but
sometimes the opposite is true. "Inferior" goods are
substitutes for the more desirable goods and a rising income will
cause a consumer to reduce purchases of the inferior good.
demand for inferior housing in a "rundown" suburb may fall
with higher incomes or an increase in income may mean that the demand
for rental accommodation falls and the demand for privately owned
price of related commodities
principle of substitution
the principle of anticipation (expectation)
consumer taste and preference