Industrial Production from Large Firms with Market Power 1. ìMy main point may again be stressed.
Most industrial production comes from large firms which have extensive power in the market. They are oligopolies. So the finding in the textbooks is that the modern economy is mainly exploitive in the prices that it charges, wasteful and inefficient in the way it employs resources and challenging in its need for reform. Then from the same books comes the conclusion that the modern economy is generally satisfactory. Theoretical performance is bad but aggregate performance is good. To the person who insists on asking how this contradiction is resolved, the answer is that it is not. The theory of price-making under oligopoly leads to conclusions that cannot be reconciled with the results (i.e., the productivity gains) on which the theorists themselves agree. (Section 2, Chapter 16, ìPrices in the Planning Systemî)
Industrial Production from Large Firms with Market Power
Explain to a college graduate who has not taken introductory and intermediate microeconomic theory what Galbraith means in this paragraph. Paraphrase it in a way that explains each sentence but defines the terms and clarifies the argument. For instance, when he says ìmainly exploitive in the prices that it charges,î what does a micro theorist mean by ìexploitive?î What is the nature of waste? How do oligopolies set prices? Why is this considered bad for the economy? (3 pages)
Industrial Production from Large Firms with Market Power
Drawing liberally on the insight from Affluent Society as well as New Industrial State, explain why the contradiction that is referred to above is not generally reconciled. In other words, why would the public generally accept and defend an economic system that they admit is wasteful, inefficient, conducive to widening income inequality, and negligent in providing public goods? Support your answer with arguments from the texts. (3-4 pages)
From Affluent Society, you may wish to draw on ìThe Uncertain Reassurance,î ìThe American Mood,î îThe Paramount Position of Production,î and ìVested Interest in Outputî as well as from Galbraithís term, conventional wisdom.
From the New Industrial State, you may consider focusing on Chs. 6 ñ 19.
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