Price Theory

"I cannot pretend that the present version is the finished treatise that I had in mind (or in youthful dreams) in the earlier years of teaching the course. But it is a much expanded and, I hope, improved version. I have filled in four of the six gaps that I enumerated in the preface to the initial version. The two I have not filled in are industrial organization for reasons given at the end of chapter 6 and the theory of general equilibrium, because there are such good extant expositions of the classical Walrasian general equilibrium approach and I am not competent to present a succinct yet faithful exposition of the more recent general equilibrium developments, particularly in the field of growth models. In addition, I rather suspect that these developments are as yet in a preliminary and unsatisfactory state." – Milton Friedman, from the preface to the revised edition Economics is sometimes divided into two parts: positive economics and normative economics. The former deals with how the economic problem is solved, while the latter deals with how the economic problem should be solved. The effects of price or rent control on the distribution of income are problems of positive economics. The desirability of these effects on income distribution is a problem of normative economics.Within economics, the major division is between monetary theory and price theory. Monetary theory deals with the level of prices in general, with cyclical and other fluctuations in total output, total employment, and the like. Price theory deals with the allocation of resources among different uses, the price of one item relative to another.Prices do three kinds of things. They transmit information, they provide an incentive to users of resources to be guided by this information, and they provide an incentive to owners of resources to follow this information. Milton Friedman's classic book provides the theoretical underpinning for and understanding of prices.Economics is not concerned solely with economic problems. It is a social science, and is therefore concerned primarily with those economic problems whose solutions involve the cooperation and interaction of different individuals. It is concerned with problems involving a single individual only insofar as the individual's behavior has implications for or effects upon other individuals. Price Theory is concerned not with economic problems in the abstract, but with how a particular society solves its economic problems. Concentrates On The Pricing Of Final Products And The Theory Of Distribution. Theory Of Demand -- The Welfare Effects Of Taxes -- The Utility Analysis Of Uncertainty -- The Relationships Between Supply Curves And Cost Curves -- The Law Of Variable Proportions And A Firm's Cost Curves -- Derived Demand -- The Theory Of Distribution With Fixed Proportions -- The Theory Of Marginal Productivity And The Demand For Factors Of Production -- Marginal Productivity Analysis: Some General Issues -- The Supply Of Factors Of Production -- Wage Determination And Unemployment -- Wages In Different Occupations -- Relation Between The Functional And Personal Distribution Of Income -- The Size Of Distribution Of Income -- Profits -- The Theory Of Capital And The Rate Of Interest. Milton Friedman. Includes Bibliographical References And Index.