Korea Agricultural Economics Association

Title Historical Changes in Perspectives of Prices from the Viewpoints of Neoclassical Economics
Author Yun-shim Kim
Paper Information Vol.61 No.4 (2020-12) Page 63~82
File KJAE(2020-Vol61No04)-Korean-04.pdf
Abstract The price itself has always been in the markets for centuries. However, the perspectives of
what price is and how price is determined have been changed for hundreds of years to date.
Adam Smith raised the question of the difference in price of water and diamond by introducing
the concepts of value in use and value in exchange. David Ricardo explained the difference in
price by the difference in labor needed to produce each product. This kind of perspective of price,
however, has changed fundamentally when the Marginal Revolution took place in the 19th
century. The Marginal Revolution has brought two new concepts to economics: marginality and
utility. The average in economics has been soon replaced with the marginality and the introduction
of utility has provided the theoretical background of demand by stressing on human desire in
price. Alfred Marshall has also applied the marginality to production and completed the two
blades of scissors, that is, demand and supply of market. The contribution of Keynes to the
perspectives of price is that under some circumstances price cannot operate appropriately, in
particular by showing that the downward rigidity in nominal wage in labor market took place
in recession. The behavioral economists joined the mainstream of economics by casting doubts
to the rationality assumption of consumers. However, they have not succeeded in providing a new
perspective of price because price cannot be derived if the rationality in preference is not
assumed. This paper is designed to review the perspectives of price by economists and to show
that the current perspectives are not invariable, so the interpretations and roles of price can be
changed at any time.