Flexible Price Formation: The Institutional and Behavioural Foundations.

Abstract

The present paper concerns the microeconomic basis for the macroeconomic demand constraint in the form of the Keynesian demand price constraint: taking Say into account denoted by the extended Keynesian demand price constraint. Price flexibility at a scale sufficient for the working of the demand price constraint is denoted by workable price flexibility. Price flexibility is not a question of historical price movements but a question of firms' practice of price setting. Price flexibility may be workable even if not every single price is flexible . Workable price flexibility depends on stability of the price formation process. In turn, this depends on systematic economic behaviour by consumers and by firms, in the paper discussed under the headings of a generalized law of demand based on economizing behaviour, and experienced suppliers' behaviour.Keynesian demand price constraint; Say's Law; representative firms; workable price flexibility; composite prices; stochastic consumer theory; generalized law of demand; empirical testing; aggregated consumption vectors; experienced suppliers' behaviour; stability of price formation