Social Classes and Equilibrium

Burak Ünveren
2013 Bogazici Journal  
This essay develops a simple worker-capitalist model. We first show that if labor markets clear at low wages then certain produced commodities are over-supplied due to inadequate demand. This implies that any voluntary trade between firms and consumers is Pareto-inefficient. Nonetheless, this inefficiency can be rectified by a Pareto-improving income transfer from capitalists to workers. We claim that these results point out an efficiency enhancing role for welfare state, and demonstrate
more » ... ' incompetency for coordinating economic activity efficiently evoking the Marxian/Keynesian polemics. Finally, we analyze price cycles in a simple setting of Walrasian price adjustment.
doi:10.21773/boun.27.1.4 fatcat:vxq44adla5dzvhvkm4hps2rsxq