Reconsidering on consumption, distribution, production, distribution and market
The mainstream economics considers demand, supply and distribution as dependent variables of price. Thus, it gets principles of demand, supply and distribution to be dependent on the price theory. It is hard to imagine without price because the general equilibrium is existed by the equilibrium price even though it has built microeconomics by introducing the general equilibrium. Therefore the general equilibrium is not independent on the price theory. In reality, microeconomics is called price theory. To my judgment, however, this theory system has served as an major obstacle to read correctly the economy as well as to evolve economics. This problem is the issue to be dealt from now on. Solving this problem is essential to build new theories of demand, supply and distribution which correspond with Choe’s Economics. It also contributes to build the market theory based on Choe’s Economics.
Choe’s Economics does not consider demand, supply and distribution as dependent variables on price. It considers them as independent variables that interact with price equivalently although the interactions of demand and supply determine price fluctuation. It also allows that each of demand, supply and distribution interacts with price independently as well as each of them interact with each other independently. All the principles of them incorporate to construct a unified theory system of Choe's Economics. The amount of consumption, production, distribution and the structure of market are mainly given by income, not by price in the real economy. Therefore, they should not be included in the price theory but they should be included in the field of income theory. Meanwhile, the theoretical bases of distribution and market structure are hardly found in the current economics. However they are briefly discussed here first since they have traditionally been regarded as belonging to price theory.
(1) Theory of Consumption
The price theory of mainstream economics is a principle for one commodity as mentioned before. It takes advantage of the general understanding that price means exchange rate but it does not present any theoretical explanation about the exchange rate between commodities. There is no mention of the gap in marginal utility between commodities and how it is embodied to the exchange rate in reality even though the difference in marginal utility between commodities is considered to determine the exchange rate in the mainstream economics. The mainstream economics has concealed this problem by subordinating demand theory to price theory and has neglected to explore the structures of consumption and their fluctuations which are very important in economic reality.
Consumption is as important as price in the real economy. Especially it is very important to understand how consumption is composed of goods and how its composition changes. The consumption of some goods grows rapidly as the economy grows regardless of price change while the consumption of other goods are either stagnant or diminished, which is just as important as the price of goods. On a macroscopic level, this problem is much more important than the price fluctuation of a particular goods. Therefore, it is an important task for economics to develop the principle of consumption construction and its change. From the perspective of a company, it is easy to see the importance of this problem as below.
The price fluctuation is also important for a company that produces certain goods but it is even more important whether the demand will increase or decrease as income changes and how fast it will increase as income increases. This problem does not arise if the economy is not growing as the mainstream economics assumes that it is stagnating with general balance but the real economy grows steadily going forward and sometimes backward. The composition of goods have also been constantly changing as income fluctuates and increases continuously as income increases. Such reality has to be incorporated into the theoretical system in order for economics to become really a social science. Any theory does not create the reality, but rather all the theories are to be created based on the realty.
The theory of consumption in Choe’s Economics encompasses how consumption of goods is composed, how its composition varies and how the demand for an individual goods changes. Especially, it is considered as a very important issue how the composition of consumption fluctuates as the economy grows.
It is a historical experience that the structure of consumption has developed from the food to the cloth with the sleeping place, followed by the living appliances and recently the enjoyment goods, as will be discussed later in detail in the "Income Decision Theory". In addition, demand has been developed in the direction of quality improvement from quantity increase. For example, the utility of food is changed from survival to taste, the utility of clothing is changed from maintaining temperature for body to fashion. The demand for sleeping places and living appliances has changed from convenience of living to fascination. These demands are derivatives which gains more profit than the basic ones. And these derivative utilities are even more important for a company. In reality, this is crucial to the profit of a company, because pursuing taste, looking for fashion and chasing for show-off allow easily people to afford expensive price.
This issue is also politically important, especially in industrial policy. Knowing how the goods are composed and how its composition changes historically can help to establish industrial policies, which influence the growth of the economy. But any industrial policy is not needed in the mainstream economics. Rather it was considered theoretically that any industrial policy should not be implemented. However many countries have implemented industrial policies in reality. Thus economics should provide at least a theoretical basis for industrial policy even though there is no basis in the mainstream economics. The strength of Choe’s Economics is also here. It provides a rationale for such a problem.
Choe’s Economics introduces newly the following problems into the theoretical system that the current mainstream economics ignored, as we have seen in the above. In other words, Choe's Economics has theoretical interests in how the consumption of total goods is structured, how its composition changes, how the demand of individual goods fluctuates, how each of these fluctuations correlates with changes in income and how each of these fluctuations correlates with each other. Furthermore, the law of the fluctuation is caught and generalized to form a principle by Choe's Economics. This problem belongs to the Kinetic Principle of Income, so I will refer to it again in detail.
(2). Theory of Distribution
The mainstream economics teaches that the marginal productivities of production factors determine distribution. However, it closes its eyes on how marginal productivity is specifically embodied in the distribution among production participants. It does not even mention how production partners distribute the profit especially when a monopolistic profit arise. On the other hand, Choe's Economics explains that the bargaining power based on the monopoly power among the production participants determines the distribution ratio among them. This problem has already been mentioned in the discussion of 'Modification of Axioms'.
The mainstream economics has also turned away from the fact that there is a great difference in the rate of added-value creation and a big difference in the revenues of production participants among companies. However, the wages of workers working in Hyundai Motors and Samsung Electronics are more than double the wages of workers around the Dongdaemun Market. The explanation for such a problem of the mainstream economics is insufficient or inappropriate. On the other hand, Choe’s Economics easily solves this problem by combining it with the theory of consumption and production, which is going to be discussed in the following.
First, the volume of the distribution is decisively influenced by the size of the added value created by a company. The volume of added value created by the company depends on the growth rate of the consumption of the goods produced by the company and it depends also on how fast the productivity of the company which produces the goods is improving. This problem will be discussed in detail later in the "Income Theory".
Second, the mainstream economics has at least been theoretically dismissive of the problem of distribution among income classes. However, Choe’s Economics recognizes this problem as a very important one. The distributional change between the income groups is closely related to income changes as well as to economic growth. This problem will also be discussed in detail in the "Income Theory" and "Scientific Economic Policy" later.
(3). Theory of Production
It is time to build production theory after when consumption theory has been established. How consumer goods are structured, how their composition changes and how consumption of individual goods fluctuates are same with the consumption theory, but they look different when they are viewed from the perspective of producers. In other words, how much the output of one commodity increases comparing to the others, They becomes very important problems how much the value added of a commodity is bigger than the others and how fast the output of a particular commodity increases or decreases.
In addition, Choe’s Economics upgrades them as a basic task of production theory that how the composition of the production factors has correlation with these problems and how the correlations change. In other words, the issue of the production of a certain goods is labor intensive, capital intensive or technology intensive. And how a company as a producer are organized and how its organization changes become also basic tasks in economics. The scientific basis of company theory or production organization theory is thus given. This issue is well known by the business administration, so no further mention is made.
Choe’s Economics also raises the issue of monopolizing or competing production as a basic task of economics. While the mainstream economics has been founded on the premise of perfect competition, Choe’s Economics denies this premise. Rather, competition and monopolization are supposed to create a dynamic balance by their interactings. Here is a brief summary of the matter as follows, which is already mentioned in the discussion of the amendment of axioms,
When economic conditions are stable and stagnant, there is a trend of monopolization. If the economic conditions are stable, the bigger the company, the more competitive it is in various aspects. On the other hand, when economic conditions fluctuate relatively quickly, there arises a trend of competition. While changes in economic conditions require rapid response, small companies and start-ups are usually more flexible in adapting to these changes because their organizations are flexible and resilient. So there appears a tendency to be competitive since the viability of a small or start-up company is relatively better than big ones when the economic conditions change rapidly.
For example, the economic situation remained relatively stable until the 1960s in the United States and monopolization was steadily progressing in general after the economic leap in mid-nineteenth century. So the families such as Carnegie, Bandervilt, Rockefeller and Ford took their place as giant riches. But the proportion of the traditional riches declined, while Bill Gates(MS), Larry Ellison(Oracle), Steve Jobs and Sergey Brin(Google) have emerged as new giants after when the US economy faced the fierce challenges of the Japanese and German economies in 1970s and the information and communications revolution began in earnest since the 1980s. This is the evidence of intensified competition. Of course, in each field, monopolization has proceeded with stable flow.
On the other hand, monopolization is used to proceed rapidly if a catastrophic economic crisis is encountered. When the economy is seriously weakened, it is used to started to be ruined for small companies that have relatively weak funding and management balance. This fact highlights the need to prevent or minimize catastrophic crises in order to promote competition. However the small companies that newly perceive this change more sensitively tend to compete by adapting it more effectively when the economic crisis is overcome and comes to a recovery phase.
(4). Profit and Production Cost
In a word, a company exists for profit. How does it exist without profit? This is a common sense, but the mainstream economics denies profit. It is considered by the economics that all excess profits of the companies disappear if the complete competition is achieved. The mainstream economics only recognizes the minimum ordinary profit necessary for a company's survival, but this is wrong. There is no reason for all the companies to exist if only ordinary profit exists, and competition will not be realized if the companies disappear. Most importantly, capital is made up of the profit. The additional capital accumulation disappears if there is no profit and then competition will disappears by not being able to build production facilities and establish companies.
There is no reason that economics takes the side of the company. This is in violation of the basic economic principle of the ‘invisible hand’ advocated by Adam Smith who established modern economics, that is, ‘everyone is doing economic activities for their own profits, and the profits go to everyone.’ In order for the principle of 'invisible hand' to work, it is correct to state that 'companies strive only to maximize their own profits, which ultimately benefit everyone'.
In reality, companies are making every effort to maximize their profits and most companies make too big profits to tell them as fair ones. The supply theory of economics, then, should deal with the question, "How can a company make profits become bigger?" This is the way to make money. Here is the reason why supply theory in the mainstream economics is almost useless for making money. This issue that how important to make money is will be dealt with as a problem of 'System Culture' in the 'System Theory'. From now on, let's look at the logic of profit, which is excellent in understanding the supply phenomenon of the economy and useful in making money.
Price plays the role of traffic lights in the economy. Consumers and producers respond according to the traffic light. It is the profit to draw these reactions. For an instance, the motive power is the profit whether consumers choose to buy or not and to decide which product to choose. Consumption is based on which is profitable. It is the same for a company. Profit is the agent for determining which product to produce and choosing whether to increase or decrease production. Increasing profit increases production, employment and investment as well as reducing profit reduces production, employment and investment.
So how do the economic entities figure out the profit? Profit means price minus cost, so the profit is increased when the price is raised or the cost is reduced. Thus you can earn more when you produce a product that reduce your production cost further or increase your sales price even more. It is also a shortcut for you to make money investing in the companies which produce products that can reduce production cost or raise sales prices and finding a job in these companies. But the mainstream economics often overlooks this simple and easy economic principle. Let's take a closer look at these two issues from now on. You will find out at the principle that 'profit increases by reducing production cost or by increasing sales price'. This problem can be understood much more easily through practical examples. Let's take a look at one such representative example.
Since the 1990s, the market of TV display has been an arena of competition between PDP(Plasma Display Panel) and LCD(Liquid Crystal Display), both of which have been competing for survival. The screen of LCD was crisp compared to PDP but our eyes were tired more because the screen was attracted to the afterimage effect of the movie, while the screen of PDP is smooth and there is almost no afterimage effect but the electric consumption is more. These disadvantages of them have gradually improved and the differences between them have almost disappeared. However LCD has become increasingly dominant in the course of the competition with PDP. What is the reason? LCD was used at most on the calculator screen at the beginning of the development, and it is a general evaluation of the professional society that PDP is better for the consumers who enjoy speedy sports still now without the afterimage effect of the video even though the performance of LCD has been improved greatly.
Why does LCD become to be dominant in the market? The most important reason is that the production cost of LCD has been reduced faster than PDP. Competition to cut production cost between LCD and PDP has naturally lead the competition of price cut, and the producer of PDP who has failed to cut price competing with the producer of LCD has suffered less profit or even lost. On the other hand, the producer of LCD has made a relatively big profit which led to a decisive advantage in the competition with PDP because the production cost of LCD dropped faster than that of PDP. Furthermore, LCD is also excellent for development, which leads to the development of LED, OLED and QLED.
Understanding this economic principle makes it easy to decide which products to choose even in other industries. Simply put, you can make more profit if you choose to produce a product that will reduce production cost relatively quickly. Decreasing the production cost can lower the selling price, so that it can overcome competition with other companies. Of course, companies do not want to lower their selling prices, but they will not be able to survive the competition. Lowering the production cost is a way for companies to survive in fierce competitions. Companies will not be able to survive if they do not drop their selling prices. Moreover, lowering the price can lead to a large increase in consumption, which in turn increases profit. For example, when the price drops by 10% and the sales increase by 20%, the sales amount increases by 8% (0.9 x 1.2 = 1.08). This is particularly pronounced in the product developed latest and the high-tech industries where demand is growing at a relatively fast rate. In short, lowering the selling price is a way of making money.
So does only the technology development as mentioned above drop the sales price? It is not. There are two other ways to drop the price. One is to innovate the production way to reduce the production cost. A typical example is the conveyor system that Ford Motor Company first introduced, that is, a production organization that puts the car body on an automatically moving belt and assembles parts in stages. With this innovation in production technology, Ford does not only have overtaken dozens of car makers at the time, but also led to the popularization of car by lowering the price significantly. It is no surprise that Ford had made huge profits at the time. Innovation in production way is so important. After then, unfortunately, Ford fell behind in competition with other companies such as GM who built up various and beautiful models while Ford rested in the T-car and stopped production facilities once.
The other is a way to increase productivity by mass production. The production cost per unit is decreased when production is increased. "Economy of scale" is working like this. For reference, the economy of scale means that productivity increases as production scale increases. Division of labor is done smoothly and the work becomes simple when production is increased and productivity becomes bigger when division of labor is done well. In addition, there are various advantages such as the ability to perform technology development independently and the independent sales organization to be activated. However, the economy of scale operates only until the production scale reaches a reasonable level. Beyond that level, 'non-economy of scale' also works. What is the appropriate scale? It depends on the industry, as the fair size of a factory to produce cars is much larger than factory that produces clothes. The fair scale also varies as the variety of industries varies.
As we have seen so far, recognizing that 'reducing production cost is a way to increase profit' also contributes to reading correctly other economic issues. For example, traditional industry such as agriculture tends to be relatively stagnant. What is the reason that the population in this industry is constantly declining? The most important reason is that the product of traditional industry is difficult to develop its production technology drastically. It can be said that almost all of the production technologies that will bring about a significant and continuous increase in productivity have been found since agriculture has developed for thousands of years. There is another reason for the stagnation of traditional industries such as the clothing and agriculture that their products are relatively stagnant in consumption. In reality, the demand for agricultural products is generally less elastic for income as well as for price. In other words, agricultural products are relatively less likely to increase consumption even when prices are lower and income increases. On the other hand, the products of these industries still maintain a strong vitality as the price is soaring even with a slight decrease in supply.
This issue of production cost applies not only to an product but also to the national economy. Let's take a look at some real-life examples as follow. Most economists have repeatedly said that the domestic economy would be sluggish and this trend would continue for a while since the growth rate of GNI(gross national income) would be lower than that of GDP whenever the exchange rate falls. In other words, they used to say that the economy could not achieve sufficient consumption and would become sluggish if the GNI was less than the GDP.
For example, GDP grew by 4.6% in 2004 but the growth rate of GNI fell to 3.8% due to lowering exchange rate and deteriorating trade term due to export price cut. The index of trade term(export unit price/import unit price) which has a decisive influence on the GNI continued to deteriorate as shown in the table below. The trade term index which was 100 in 2000 fell to 85.3 in 2004 and to 79.0 in 2005. The Korean economy which depends heavily on trade seemed to be inevitably worse since the export price became lower than the import price and trade had to suffer losses if this trend continued.
Index of Trade Term
source ; Monthly Statistical Bulletin Dec. 2007, The Bank of Korea
So most Korean economists predicted a downturn of the Korean economy at the time, but this was uncorrect. The Korean economy did not fall. Rather, its growth rate rose from 4.2% in 2005 to 5.0% in 2006. Why did this phenomenon happen quite differently than most economic experts predicted? The answer is simple. They have overlooked the fact that reducing production cost and raising price would increase profit or income. The concept of GNI itself has such a limit.
Gross national income is calculated on the basis of GDP. It is the GNI that is calculated excluding the net loss of GDP from overseas trade. The GNI is considered to be reduced due to the impact of losses in foreign trade if the export price falls more than the import price and the terms of trade deteriorate. But this is wrong. Profit is merely a reflection of the basic economic principle that the sale price excludes production costs.
The export prices tend to decrease more rapidly in a country that has developed fast like Korea. For an example, the export price of semiconductors, one of the main exports of Korea, has fallen to less than 1/20 in the past two decades. The price of 1G DRAM which is four times the capacity in 2014 was less than 1 dollar while the price of 256M DRAM surpassed 20 dollars in the mid-1990s. So, does Samsung Electronics and Hynix which export these products have suffered as much? No, their profits have increased significantly when the economy has been brisk. Why? The answer is that the production cost has fallen more sharply with production yields rising sharply even though the export prices have fallen.
Let us see one of the other cases. The price of 14-inch TV set is sold by 200 dollars now while it was worth 300 dollars in the early 1980s, as mentioned earlier, even though overall wages, prices and income have increased sharply more than then. So, did the price of TV set just fall off? No, it does not. The screen size of TV set has increased day by day and 50 inches can not belong to the large size now. Not only a high-definition LED TV but also stereoscopic TV is showed up. These new products are expensive when they are launched first but drop quickly over time. Is the profitability of the company which produces TV sets deteriorated if their prices have fell so badly? No, it is not. The profitability is higher for the company which decreases the price faster than others. It is not a special phenomenon but a common one that the profit of a company increase more when the prices of its products fall fast.
Contrary to Korea, the export prices of a country that grows slowly or stagnates drops rarely. The producers will have to suffer losses if the export prices are lowered in this country. Why? Stagnant growth means that productivity growth is slow, which means that production costs can not be lowered. Therefore, such a country is hard to reduce the export prices.
In conclusion, GNI of a fast-growing country tends to be relatively undervalued and GNI of a country with stagnant growth tends to be relatively overvalued. So which one would be better? A fast-growing country is desirable even if the GNI is undervalued. Therefore, it is not right to judge the economic situation based on the GNI. It is a mistake to tell whether the economy will be stagnant or good judging by GNI. The prospect of the economy will slow down when the growth rate of GNI is higher than that of the GDP. The above mistake is raised because it is not understood the economic principle that lowering the production costs increases profit and income.
On the other hand, profit does not only increase when the selling price is lowered. The profit also increase even when the selling price is raised. Especially, the products of traditional industries are characterized by not increasing profit without increasing their sales price. This may seem like self-contradictory but it's the economy. In reality, there are a lot of companies which produce traditional products make big profits. Is it right that the demand is reduced if the price is high and then the profit is reduced? No, it is not right always. The profit will not decrease but it can increase if you find out how to increase the selling price without decreasing the demand. So how can we raise the selling price without reducing demand? We have already looked at this issue by addressing the issue of quality in the ‘Evolution of the Principle of Supply and Demand.
(5). Brand, Organization, Advertisement, Sales Maximization
What business or job would be good for you to choose? What kind of company or industry should be nurtured nationally? Naturally, it is desirable to choose the industry that will endure high national income. What is the industry? It is an industry that its competitiveness is strong and maintains for a long time. Specifically, what is the company of which competitiveness is strong?
First, it is a company which has a strong brand power. The products produced by the company are luxury goods and the prices of the products that rank among the luxury goods are much higher than those of other similar products.
The second is a company which has high technology. Technology is the collective term for the ability to develop a better product in facility and design, to develop a new product that has never existed and to produce at a lower price or to produce more at the same cost, which determines the competitiveness and growth potential of the company. Higher technology speeds faster productivity and faster productivity increases competitiveness and growth more.
Third, it is a company with an excellent organization. The market is the stage of competition. Any company has to lose everything if it can not survive on the stage of this competition but it gets almost everything if it survives. The power to overcome the competition is expressed by the organizational power of the company. This organization power includes the role of a top manager. A top executive can save or kill an company. There is a lot of cases which a CEO has resurrected a company that has actually fallen.
For an instance, Lee Iacocca saved Chrysler which suffered from astronomical deficits of 3.5 billion dollars and inventory accumulations once. He dismissed 21 affiliates, fired 33 out of 35 vice presidents and fired 50 thousand out of 180 thousand employees when he took office as president at the end of 1978. He improved the management balance dramatically on the basis of new car development and unprecedented sales strategy. As a result, Chrysler paid back 2 billion dollars for the bailout loan of the government seven years before maturity. Even though the dismissal of large-scale layoffs in the process of restructuring has caused public criticism but all the workers would have lost their jobs due to Chrysler bankruptcy if it had not been done.
Carlos Ghosn who saved Nissan and Howard String who saved Sony in the 2000s are also representatives of the leadership. There are many other cases. In particular, Jack Welch who emerged GE as a world-class company in the early 1980s by making major structural adjustments along with innovations such as decision-making structures and human resources has raised the issue of leadership even more. The role of top management in corporate organizations is just as important.
Finally, there are companies with strong advertising and sales force. There is no perfect information in reality which may be unfamiliar to the major economists, even if the mainstream economics presupposes that consumers always have perfect information. The problems of the mainstream economics are also revealed here nakedly. It is based on preconditions that are far from reality. In fact, consumers do not have complete information about products. So, advertising and marketing play crucial roles in the prosperity or decline of a company.
For example, a consumer snoops on several shops in order to buy a suit and compares several suits. He often regrets after buying a suit. It takes time and money for consumers to get even the incomplete information and bad choices are often made by them. That's why advertising and marketing work. The fact that consumers make every effort to get information raises the importance of advertisement and sales strategy. In reality, companies are making a strong effort in advertising and sales. Companies are striving for advertising and sales in order to promote consumer’s purchasing by constantly communicating information that is beneficial to themselves. This fact plays a very important role in reading economic phenomena as well.
It is more common for companies to compete for sales rather than for profits. The reason is found in consumer’s selection which is relied on incomplete information. No matter how much informations a consumer collects, it is incomplete. And he sometimes make mistakes or lose choices. What does the consumer ultimately depend on if the experience of this failure continues to accumulate? Of course, it tends to rely on a first-class product. It is rare to be disappointed if he buy a first-class product. So it is common for first-class products to sell well even if they are more expensive than others. On the other hand, products other than the first class are relatively inferior. So a first-class company can make profits, a second-class company can survive but a third-class company should worry about resignation. The profitability of a company is guaranteed if it overcomes sales competition.
There is a limit to the informations that a person can remember. Anyone has to erase the informations of the past naturally in his mind in order to accept new informations constantly, so the memory of a person gradually fades as time goes by. In general, only about three or four pieces per person can be remembered for a long time. For example, an ordinary person who is not a singer can sing at most three or four songs. In some people it is common to remember only one or two songs. The same is true of companies. A company can be memorized to consumers when it is placed on the first place and it can not be erased from their memories until it is the second place. This is why companies are striving for advertisement and sales competition. Even when they are hurting profitability they are competing for ad and sales competition. This is because it guarantees survival.
In recent years, there has been a tendency to avoid such sales competition and to aim for quality competition or brand competition. This is because the role of image as 'quality first place' is similar to the role of 'first place in sales' image. The image of 'quality first' is deeply engraved in consumers’ mind leaving big profits. However, it is difficult for all products to follow the image of 'quality first'. The image plays an important role in the showing off products where quality plays an important role. In general products, the image of ‘first place in sales’ is much more important. It is a reality that the image of 'first place in sales' is often regarded as 'first in quality'.
(6) Theory of Distribution and Market
In the mainstream economics, theories of distribution and market are equally vulnerable. However, distribution and market also play important roles throughout the economy with strong impacts on production, consumption and distribution of goods as well as with strong influences on economic growth, ie, income growth. It is natural that the problems of distribution and market are also the basic tasks of economics which studies all the economic phenomena. Let's look at these problems from the viewpoint of a new economics.
First, distribution is divided into network and means of distribution. Among them, the distribution network is composed of social infrastructures such as roads, railways, storage facilities and so on with the distribution networks of companies such as dealers, warehouses and distribution centers. The means of distribution are collectively referred to transportation facilities such as trains, automobiles, ships, aircraft, pipelines, courier services and quick buses. Choe’s Economics takes all these forms of distribution as subjects of the theory as having a great influence on economic circulation and growth as well as stability. And it is an important task in Choe's Economics how each one fluctuates.
Market theory is also weak in the mainstream economics. It is because its theory is built on the assumption of perfectly competitive market. There is no differentiation between markets in a perfectly competitive market and it does not need to pay special attention. Of course, the mainstream economics is also interested in imperfect markets such as oligopoly and monopoly but this is in contrast to the paradigm of economics based on general equilibrium. In reality, there are many kind of markets such as traditional market, general store, agency, large discount store, department store, online market and TV home shopping. The same is true for the production factor market. The mainstream economics also ignores this kind of market diversity but it greatly affects the economy how the composition of these markets changes.
More importantly, economic activity is severely affected in general whenever a new type of market emerges. The cost of logistics and acquiring informations are greatly reduced as the internet has developed very fast in recent years and the huge online markets are newly formed, which contribute to economic growth by further activating the transaction of goods. The same goes for TV home shopping. Therefore, it is desirable for economics to include theories of market and distribution in income principle. Likewise, the networks and means of distribution are very important. In reality, the development of networks and means of distribution greatly contribute to economic growth.