Prices and the distribution of national income

Abstract

This chapter examines the role of the price system in macroeconomics and in the distribution of income between wages and profits. Prices are not naturally determined by supply and demand simultaneously. Instead, prices of raw materials tend to be demand-determined, while manufactured goods are set by the firms manufacturing them. The difference between them reflects the different degrees of monopoly or competition in their respective markets, so that the prices of finished goods are more likely to be set by their producers using a mark-up over labor costs.