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Sekerka - Kyn - Hejl:  Price Calculations

5. The Problem of the (n + 1)st Unknown

In the above formulated equations for all type of prices, in addition to unknown prices there always appeared at least one additional parameter: m, r, r, r*, m*, d.  We have not yet showed, how these parameters can be determined. Assuming, that there are n unknown prices, this additional parameter is the (n + 1)st unknown. We need therefore one additional, that is (n + 1)st equation to determine the (n + 1)st unknowns and through that, also the result­ing price levels. Now we need to decide how to formulate the (n + 1)st condition.

One possible and appropriate way is to require that the total quantity of consumer goods bought for wages remains unchanged in transition from old to new prices(7). As the statistical data needed for such a condition are not available, we have to be satisfied with an approximately equal condition, that the total value of private consumption remains unchanged.  It is clear that with the above mentioned condition the price calcula­tions must result in changes in the volume of both  gross social product and national income.
It is, however, to be noted that this formulation of the (n + 1)st condition is simplified and therefore not sufficiently precise. We do not take into account the fact that the change of relative prices can influence the structure of  demand. The content of real wage remains  constant only on the average, in individual income groups the changes of real wages may occur.

 

 

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