This paper is concerned with situations where firms not only recognize the dependence of quality on price (of productivity on wages, of default probability on the interest rate charged), but also attempt to use what control they have over price (wages, interest rates) to increase their profits. The recognition of this possibility has important implications for economic theory, which have recently been explored in a large number of papers in several disparate fields. The objective of this paper is to survey these papers and to draw out the central themes of this literature. This paper is divided into four parts, In Part I, we discuss the most important implications of the dependence of quality on price for competitive equilibrium theory--the repeal of the law of supply and demand (Part I.1), the repeal of the law of the single price (Part I.2), the existence of discriminatory equilibria (Part I.3), the comparative static consequences (Part I.4), and the inefficiency of market equilibria (Part I.5). Part II discusses alternative explanations for the dependence of quality on price in labor, capital, and product markets.

This paper establishes that when there is not a complete set of markets but more than one commodity the stock market equilibrium will not in general be a constrained Pareto optimum. The economy will lack both the property of exchange and production efficiency. Necessary conditions which must be satisfied if the economy is to be a constrained Pareto optimum for all technologies are derived; if all individuals have identical, homothetic indifference maps, then either there must be unitary price elasticities (so there is no effective risk) or all individuals must have the same degree of risk aversion (so there is no trade on the stock market).

Stiglitz establishes the relationship between monopoly, non-linear pricing, and imperfect information in the insurance market.

I. Introduction, 194.--II. The model, 196.--III. The market equilibrium, 205.--IV. Optimal allocation of labor and determination of urban wage level, 207.--V. Wage subsidies, 214.--VI. Wages and shadow price of labor in the public sector, 218.--VII. Urban income taxes, 220.--VIII. Concluding comments and summary, 222.--Appendix: "nominal" and "expected" urban wages and the unemployment rate, 223.

Today's weakness in the US economy results from lack of aggregate demand, due to high and growing inequality, underinvestment in public infrastructure and technology that is complementary to private capital, continuing mild austerity, difficulties encountered in making the structural transformation from manufacturing to a service-based economy, and a financial sector failing to provide adequate funds to SMEs. An agenda to restore growth includes a carbon price, inducing climate investments; increased public investments in infrastructure and technology; fighting inequality through redistribution and rewriting the rules structuring the economy; and reforming the financial sector and the global reserve system.

This article begins with the hypothesis that large economic fluctuations--the marked changes in the unemployment rate that characterize market economies--are a consequence of problems of adjustment to disturbances, especially adjustments of wages and prices. The article argues that because different prices (including prices of labor and capital) are determined in different ways, shocks lead to marked changes in relative prices, and those disturbances in relative prices greatly exacerbate economic fluctuations. The author looks closely at the price-setting process, providing further insights into why prices exhibit rigidities and why different prices may adjust at different rates. He then explores the consequences of asymmetric price responses.

The year 1996 marked the 50th anniversary of what has turned out to be an enormously successful institutional innovation: the Council of Economic Advisers (CEA). It was neither obvious nor inevitable that the CEA would enjoy the success it has had. Who would have thought that a group of academics, typically with little or no experience with politics or realpolitik, would not only survive in the rough-and-tumble of Washington, but also thrive and have some influence over policy? To be sure, the CEA's influence has fluctuated and has had to be established anew with each administration. But the durability of the institution, despite repeated reexaminations, is a testimony to the contribution that it has made in both Democratic and Republican administrations.

There is an old joke about economics which says that the questions stay the same, only the answers change. Though there is some truth in that idea, I would argue that over the past 50 years, there have been marked changes both in the questions and in the answers, but that many of these changes are still only imperfectly reflected in undergraduate textbooks.

A central question in development economics is, how can we account for differences in the levels of income and the rates of growth between the developed and less developed economies?

Stiglitz dissects the relationship between price rigidities and market structure.