The paper "Free Market Economic by Steven Kates" is a perfect example of a micro and macroeconomic book report. The main two questions arising from chapter three are what is value and how value is added in economic activity (Kates 2011, p. 46). The theory, which tries to answer this question is Adam Smith’ s theory of capitalism. Kates (2011, p. 49) argues that a good or service has value because it can be used to satisfy a human need or produce something else with either greater or lesser value. According to capitalism theory, the main role of an entrepreneur is to produce goods and services of greater value than the inputs into any production process in a bid to make a profit.
According to Steven (2011, p. 50), for an entrepreneur to produce a good or service of value, then another good or service of value has to be given up. Therefore, in accordance to Smith’ s theory of capitalism, value-added occurs when the value of what has been produced is greater than the value of what was utilized in the production (Kates 2011, p. 51). Production is said to be value-adding when it is sold at a price that is able to pay all the total costs sustained in the whole process (Kates 2011, p. 52).
According to capitalism theory, for a production to have benefit, there must be a surplus of revenue after subtracting all the incurred costs of the inputs and the production process. Therefore, according to Smith, for an entrepreneur to realize any profit, he or she must endeavor in value-adding production processes (Kates 2011, p. 53). Chapter 6 and 7: Supply and Demand From the two chapters, the main question, which is arising, is how is a particular price arrived at amidst the competitive forces (supply and demand) of the market (Kates 2011, p. 88).
The price theory answers this question clearly and satisfactorily. According to the theory, the point at which the benefit achieved by those in demand of a good/service meets the supplier’ s marginal cost is the most favorable market price for that good/service. According to Steven, competition is an important factor that regulates prices of commodities in the market (Kates 2011, p. 91). It is obvious that a supplier would make a huge profit by raising the price of a good or service.
BBC News 2014, South African economy avoids recession, Viewed 27 September 2014
Kates, S 2011, Free Market Economics: An Introduction for the General Reader, Kates Print.
Mutikani, L 2014, U.S. consumer inflation rises on high gasoline prices, Viewed 27 September 2014
Neuhauser, A 2014, Why the price of filling up has been going down, Viewed 27 September 2014
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