In the Study Guide for Man, Ecnomy and State, Murphy says:
"On page 660 and pp. 689-690, Rothbard argues that demand is always elastic above the free market price. However, a mainstream economist would respond that Rothbard is conflating the market demand curve with the individual firm’s “perceived” demand curve; the market demand for wheat may be inelastic at the “competitive” price, even though individual wheat farmers perceive perfectly elastic demand curves. (Of course Rothbard criticizes such a view elsewhere in the chapter.)
I cannot find where Rothbard explicitly critizes this view other than his tangentially related criticism of “competitive price”.
Is it not the case that the very function of competition in the market is to increase consumer surplus by lowering the producer’s surplus?
But, does this still not make the market demand curve elastic above the market price? Is Rothbard not conflating the market demand curve with the individual firm’s “perceived” demand curve?
Why or why not?
Does anyone have an answer?
I’m still interested in finding the answer to my question. If anyone could be of any help at all, even if the point is only tangentially related, it would be most appreciated.
Does anyone have an answer? I don’t mean to be rude but this has been bugging me for awhile.
What do you mean by the following?
Is it not the case that the very function of competition in the market is to increase consumer surplus by lowering the producer’s surplus?
It seems to me that Rothbard’s reason to claim that there is an elastic demand curve above the market price is because at a certain price consumers will opt for a substitute, or will opt to stop consuming the product. As he writes after page 660, the price of a good is that voluntarily decided upon between seller and buyer, and so no seller has absolute control over the price of any good. At a certain price, the buyer will no longer be willing to buy the product.
It is true that the seller will want to price the good at the point that maximizes his revenue. Which is the point where on his individual “perceived” demand curve that it begins to get elastic. But, that does not mean that on the market for the good as a whole that the demand curve above the free market price is necessarily elastic.
Competition reduces the producer surplus, which would seem to mean that the consumers are willing to pay more for the product and that therefore the demand curve above the price is elastic.
I apologize if this isn’t clear. I would appreciate any clarifications.