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Showing posts with the label income distribution

Decision Making as Output and Bounded Rationality

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  The classical economics theories proceed on the assumption of rational agents. Rationality implies the economic agents undertake actions or exercise choices based on the cost-benefit analysis they undertake. The assumption further posits that there exists no information asymmetry and thus the agent is aware of all the costs and benefits associated with the choice he or she has exercised. The behavioral school contested the decision stating the decisions in practice are often irrational. Implied there is a continuous departure from rationality. Rationality in the views of the behavioral school is more an exception to the norm rather a rule. The past posts have discussed the limitations of this view by the behavioral school. Economics has often posited rationality in the context in which the choices are exercised rather than theoretical abstract view of rational action. Rational action in theory seems to be grounded in zero restraint situation yet in practice, there are numerous restra
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Marginal Productivity of Labour and Wages : A Note

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In economics, there is a considerable interest and natural one at that about the wages. There is a question about the ideal wages that an employee would secure. Karl Marx had posited that the labour produce the goods yet it is the capitalists who appropriate all the profit. In Marx’s words, if a shoe were to cost to produce $1 and a labour produces four shoes in an hour, he would have produced the output equivalent to $4. Yet while the capitalist would gain a revenue of $4, he would at best let’s say given $1 to the labour. Assuming the fixed costs and non-labour costs to be $1, the capitalist still makes a profit of $2. This in the long run would lead to income disparities and become a cause for the revolution. The Marxian theory was later criticized on the grounds of human capital theory. In the past, the posts have sought to link for instance Smiley Curve with the Marxian propositions. Marx did face a challenge from what was emergent as the neo-classical theory. The neo-classicalist
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