By Gunter Stephan
Capital idea is a cornerstone of recent economics. Its rules are basic for dynamic equilibrium idea and its innovations are utilized in lots of branches of economics like video game conception, source and environmental economics, even though this won't be famous on a primary look. during this monograph, an procedure is gifted, which permits to derive vital result of capital idea in a coherent and conveniently obtainable framework. a distinct emphasis is given on endless horizon and overlapping generations economics. Irreversibility of time, or the failure of the marketplace procedure look in a distinct mild if an unlimited horizon framework is utilized. To bridge the space among natural and utilized fiscal conception, the constitution of our theoretical method is built-in in a computable normal equilibrium model.
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Extra resources for Introduction into Capital Theory: A Neo-Austrian Perspective
For example, suppose there are four commodities: labor (good 1), raw materials (good 2), services of a capital good (good 3), and consumption good (good 4). Assume, it is technically feasible to produce one unit of the consumption good by employing as inputs two units of labor, one unit of raw materials and three units of capital good services. Then the combination of the input-vector, x = (2,1,3,0), and the output-vector, y = (0,0,0,1), describes a technically feasible production process [x,y].
Clearly, then, technically feasible production processes must exist (and should be known) for the firm, that enable the firm to produce the same gross output from lower inputs, or to produce a higher output from the same set of inputs. TIlis is impossible for a firm that has already maximized its profits at strictly positive prices. Do we encounter this characteristic again in intertemporal models? In order to respond to this question, we must first explain how production should be understood in a dynamic framework, and then expand the static concept of efficiency to dynamic considerations.
14) E Gt : p(t+ I )y(t+ I) - p(t)x(t) ~ p(t+ I )y*(t+ I) - p(t)x*(t). 3 illustrates this theorem for a two-period, one commodity economy. There we have shown intertemporal consumption possibilities, C(y(1 ),w) subject to existing resource endowments and technology. Every point along the transfor- mation curve represents a consumption bundle that corresponds to a feasible production program which is, according to our definition, intertemporally efficient. A line can be drawn through these points that is tangent to the transformation curve.
Introduction into Capital Theory: A Neo-Austrian Perspective by Gunter Stephan