CHAPTER 20
Prices, Profits, and Exploitation
LEARNING OBJECTIVES
Explain how the relative value of products is determined by the amount of labor in a
simple economy.
OUTLINE OF CHAPTER
I. Markets and Prices: The Wild West
II. Prices on the Western Frontier
VI. Summary
KEY TERMS
rate of profit
equals the profit divided by the costs to the corporation for a worker and his or her used–
up material goods
ANSWERS TO END OF CHAPTER REVIEW QUESTIONS
Explain how the relative value of products is determined by the amount of labor in a
simple economy.
1. What is meant by the term relative value? What does it measure?
2.
economy.
3. How does the example in this chapter use the amount of labor used to produce a product
to determine the relative value of one product in terms of another product, such as the
value of pigs in terms of chickens? What types of labor go into producing the product?
4. 2?
In this chapter surplus is the amount above costs that goes as profit to the owners of
Explain how the relative value of products is determined by the amount of labor in a
capitalist market economy.
5. State the key factors that make the analysis of the labor theory of value more complex in
a capitalist market economy. Explain.
6. How do prices in an advanced economy help measure the relative value of two different
commodities? How are the prices of various goods measured in an advanced market
economy?
7. Explain how money helps facilitate trade and enables economies to grow.
8. How is labor input into a product measured in a capitalist market economy? Explain
using an example.
9. What does the labor theory of value assume about other inputs such as, in the example of
the pigs, feed or machinery? In other words, how is the labor measured for inputs other
than employees?
Inputs required labor to produce. Example: The farmer buys equipment used in taking
Show how employers take part of the
10. What is necessary labor?
11. What is the surplus created in the production of a product? Explain how this surplus is
12. How does surplus translate into profits for business owners in a capitalist market
economy?
13. Assume the price of a quart of yogurt is $5 in the market. A firm employs one worker,
and she earns $6 an hour for an eight-hour day. Other inputs to produce a quart of
yogurt come to $2 per quart. Each day, the firm produces and sells 20 quarts of yogurt.
Calculate the surplus value and rate of profit per worker.
The employer has the right to own the entire product produced by the employee during
Discuss the ways in which labor is unlike other commodities bought and sold in the market.
14. Use the concept of labor power to explain how working for an employer in a capitalist
market economy is not the same as slavery.
15. How can labor power be treated as just another commodity, such as cheese, in the
market?
16. What are some criticisms of this idea of labor power as a commodity? How is labor
power not like other commodities?
However, it is different from other commodities in three important ways. First, labor
17. Why do employers try to keep wages and other employee compensation low? Explain
the impact on business owners if the cost of labor rises?
18. Why do workers struggle to raise wages and other employee compensation? According
to the labor theory of value, what are they bargaining over?
19. What are some of the ways that the conflict between employers and employees over
surplus product is manifested?
APPENDIX 20.1
Rejection of Labor Theory and Consideration of Alternative Theories
LEARNING OBJECTIVE FOR APPENDIX 20.1
Explain how the labor theory of value has been criticized and defended and how some
reject it and use other theories to explain exploitation.
OUTLINE OF APPENDIX
I. Transformation from Labor Hours to Prices
KEY TERM
ANSWERS TO APPENDIX 20.1 REVIEW QUESTIONS
Explain how the labor theory of value has been criticized and defended and how some
reject it and use other theories to explain exploitation.
1. What is the transformation problem?
2. Explain why the rate of profit and the rate of exploitation are considered to be
inconsistent by some economists. As part of your explanation, define the rate of profit
and the rate of exploitation.
If the rate of exploitation were assumed to be the same in all industries, then, under
3. What is an alternative theory, besides the labor theory of value and the neoclassical
model, used in attempting to explain exploitation?