Breaking Say’s law in a simple market economy model

Abstract

This paper analyses a multi-sector market economy where preferences are non-homothetic and satiable. Capital and labour are the production factors. Food and manufactured goods are produced with a constant-returns-to-scale technology and an increasing-returns-to-scale technology, respectively. Results include: an original capital accumulation process is required for manufacturing industrialization to take place, a minimum market size is needed for the economy to operate, and capital property concentration diminishes aggregate demand. Full general equilibrium is possible for intermediate degrees of capital concentration, but the price system collapses under high degrees as an economy regulator, labour unemployment is unavoidable, and a minimum wage is justified to enhance economic activity.

Keywords

• Extent of the market
• capital property distribution
• non-homothetic preferences
• satiable preferences
• increasing returns
• economic activity