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In neoclassical economics, a market distortion is any event in which a market reaches a market clearing price for an item that is substantially different from the price that a market would achieve while operating under conditions of perfect competition and state enforcement of legal contracts and the ownership of private property.
A long thread in economics (from Aristotle to classical economics to the present) distinguishes between exchange value, use value, price, and (sometimes) intrinsic value. It is frequently argued that the connection between price and other types of value is not as direct as suggested in the theory of price signals, other considerations playing a ...
Economic noise, or simply noise, describes a theory of pricing developed by Fischer Black. Black describes noise as the opposite of information: hype, inaccurate ideas, and inaccurate data. His theory states that noise is everywhere in the economy and we can rarely tell the difference between it and information. Noise has two broad implications.
Price fluctuations as a result of inflationary factors, quantity discounts, or sales tend to stimulate customers to buy larger quantities than they require. The game of sales and discount push, in the case where the sales economy is higher than the stocking expenses, the firm to buy greater amount that what they need.
The distinction between real prices and ideal prices is a distinction between actual prices paid for products, services, assets and labour (the net amount of money that actually changes hands), and computed prices which are not actually charged or paid in market trade, although they may facilitate trade. [1]
Socialism is unfeasible in this view because information cannot be aggregated by a central body and effectively used to formulate a plan for an entire economy, because doing so would result in distorted or absent price signals; this is known as the economic calculation problem. [3]
The rationale behind Lucas's supply theory centers on how suppliers get information. Lucas claimed that suppliers had to respond to a "signal extraction" problem when making decisions based on prices; the firms had to determine what portion of price changes in their respective industries reflected a general change in nominal prices (inflation) and what portion reflected a change in real prices ...
In addition to the absolute pass-through that uses incremental values (i.e., $2 cost shock causing $1 increase in price yields a 50% pass-through rate), some researchers use pass-through elasticity, where the ratio is calculated based on percentage change of price and cost (for example, with elasticity of 0.5, a 2% increase in cost yields a 1% increase in price).