Open AccessBreaking Say’s law in a simple market economy model
Author(s) -
Carlos Humberto Ortíz,
Rodrigo Castillo Rentería
Publication year - 2020
Publication title -
cuadernos de economía
Language(s) - English
Resource type - Journals
eISSN - 2248-4337
pISSN - 0121-4772
DOI - 10.15446/cuad.econ.v39n81.70883
Subject(s) - economics , capital (architecture) , capital good , unemployment , industrialisation , returns to scale , production (economics) , intermediate good , market economy , physical capital , general equilibrium theory , labour economics , monetary economics , microeconomics , goods and services , macroeconomics , human capital , archaeology , history
This paper analyses a multi-sector market economy where preferences are non-homothetic and satiable. Capital and labour are the production factors. Food and manufactured goods are produced with a constant-returns-to-scale technology and an increasing-returns-to-scale technology, respectively. Results include: an original capital accumulation process is required for manufacturing industrialization to take place, a minimum market size is needed for the economy to operate, and capital property concentration diminishes aggregate demand. Full general equilibrium is possible for intermediate degrees of capital concentration, but the price system collapses under high degrees as an economy regulator, labour unemployment is unavoidable, and a minimum wage is justified to enhance economic activity.