Showing papers on "Factor price published in 1969"

Factor price equalization and the stolper-samuelson tiieorem*

Abstract: It is important at the outset to remove an ambiguity in the statement just made. It is one thing to say that, given any initial equilibrium position, there exists a one-to-one association between commodities and factors such that a change in any commodity price will lead to a more than proportionate change (in the same direction) in the corresponding factor price. It is quite another thing to state that it is possible to find a one-to-one association between goods and factors in advance such that, starting from any equilibrium, a change in any commodity price will lead to a more than proportionate change in the price of the already specified factor. The first may be called the local version of the Stolper-Samuelson theorem, and the second the global version. Another distinction must be made. In the case of two factors and two commodities (the only case treated rigorously by Stolper and Samuelson), it turns out that if, as a result of an increase in the price of a good, one of the factor prices rises more than proportionately, then the other factor price must actually fall. In generalizing the theory to more than two commodities and two factors, it no longer holds that a more than proportionate increase in one factor price entails a fall in all the remaining factor prices. The case in which this does occur will be referred to as the strong form of the StolperSamuelson theorem, whereas the more general case will be called the weak form. We shall explore the various ways in which the theory first set forth by Stolper and Samuelson may be extended to n goods and factors. The main conclusions can be summarized as follows (the wording is necessarily vague, inasmuch as it constitutes a translation of mathematical conditions): (1) The Stolper-Samuelson theorem (strong, as well as weak form) is true locally (almost everywhere) for n 2, and globally whenever reversal of factor intensity is ruled out, as is, by now, quite well known. However, it is no longer true for n > 2, even under conditions which guarantee full factor price equalization. (2) Under certain special conditions, the weak form of

Balance on Unbalanced Growth

Abstract: In his paper Baumol raised a number of important issues. Included are several knotty problems of an empirical nature: Can measures of outputs which we normally classify as services be reasonably divorced from measurement of the inputs of labor involved in their provision? Can commodities be satisfactorily divided into two classes: those for which the technology of production is inherently stagnant, and those for which technological progress is possible? It should be clear that in this paper no attempt has been made to address these or any other factual questions.

On the Relevance of Price-Level Accounting

Abstract: Accountants have long been frustrated by the inability of the conventional accounting model to cope with changes in prices over time in what they deem to be a satisfactory way. Numerous suggestions have been made for dealing with this problem. Some involve a revision of the formal accounting model itself; other suggestions have been limited to finding means for providing information in supplementary form outside the formal model. In discussing this problem, a distinction is usually made between ways of accounting for price changes involving the specific assets held by the entity in question, and changes in aggregate prices which tend to alter the purchasing power of the monetary unit in which the accounting measurements are expressed. It seems to be generally recognized that while accounting for changes in specific prices and accounting for changes in the general price level are not independent, they are logically separable.' For this reason, we are justified in considering the price-level problem by itself, as is done in this paper. The problem is to account for the changes in the "general" price level between points in time, a change that is viewed as the direct inverse of the change in the purchasing power of the monetary unit. The measurement of this change is almost universally considered accomplishable by use of a weighted average of representative prices.2 Conceptually, the choice of weights and commodities to be included in the index presents an insurmountable problem since most individuals and firms do not usually mix

Rent and Producer's Surplus: Reply

Abstract: studies. Certainly the Mishan proposition on these grounds could at least lead to serious confusion. Even worse, however, is the fact that the sum of the Coimipensating Variations (or Equivalent Variations) for the series of price change from zero to some given market price does not equal the areas under the supply curve of the factor except in the limiting case referred to above; i.e., where the welfare supply elasticity of the supply of X is zero. Thus we would have two measures of total rent or welfare change neither of which, except under very unusual circumstances, would equal the payments traditionally viewed as rent.' Thus, following Mishan's suggestion would lead us to use a rent concept which would be botlh ambiguous and not directly related to factor payments. Such a concept would be of little value in the theory of cost and the theory of distribution which are concerned with specific payments. These are the very areas where the idea of economic rent is most useful. Consequently Mishan's suggestion should be rejected and a more traditional concept of rent retained.2 If the definitions of rent are left undisturbed, what type of concept can be employed to parallel consumer surplus? Since none of this is intended to dispute Mishan's claim that the Compensating Variation and the Equivalent Variation are good measures of the welfare change engendered by factor price variations there is no reason the CV and the EV cannot be used in this way. They merely should not be called "rent." It should be sufficient merely to refer to the Compensating Variation and the Equivalent Variation as measures of welfare change resulting from factor price changes. If that is not adequate and a specific term is required, "producer's surplus" could well be redefined in this manner-as the CV and EV. Such a definition would directly parallel Hicks' concepts of consumer surplus and the terminology would directly follow from Mishan's main theoretical contribution, namely, applying Hicks' consumer price change analysis to factor price variations.

Role of science and technology in advancing development of newly industrializing states

Abstract: SCIENCE and technology refers to a continuum of knowledge ranging from basic understanding to practical application. The two principal sources of technical knowledge are invention through discovery or experiment and innovation or adaption to meet new needs or modified conditions. Research and development are activities which lead to discovery, invention, and application in a market-relevant sense. Development beyond the invention stage is generally necessary to convert a technical discovery to an economically useful product or production technique. Technical innovation must have a time and place relevance to be economically useful or commercially viable. (In India, pressure cookers and butane burners have been widely accepted by consumers, but solar cookers have not). Beyond research and development, industrial engineering is concerned with the overall design of products and systems to meet the functional requirements of consumers at the most economic cost. Technological innovation may be cost-reducing or time-saving, or contribute to safety or convenience. The same industrial good may be produced at different scales of production and by a variety of production techniques. Implicit in alternative techniques are varying combinations of labor management, equipment, and materials. Qualitative differences in labor skills, industrial management, and organization, and in available materials and other producer’s goods, influence the relative cost and efficiency of a particular technology. The size of market demand is another major determinant of technological choice and relative production efficiency. Technological progress refers to the gains in economic output that are attributable to the more efficient use or combination of production inputs. The limits of technological progress are set in part by the quality of human resources, socialorganization, the stage of industrial development, and the prevailing economic policy frame. The supply and demand for technological innovation depend upon the commercial and economic contexts. On the demand side, an important distinction needs to be drawn between market demand and social demand. A firm’s willingness to expend funds on product or process changes or innovations depends upon competitive forces to reduce costs or comply with consumer demands. In the choice of techniques, there are often substantial gaps between commercial and economic criteria due to factor price distortions. In most developing economies, unskilled labor is overpriced, capital goods are underpriced, and

Changes in Factor-Endowment, the Terms of Trade, and Factor-Price Equalisation

Abstract: Recent years have witnessed two distinct trends in the development of the pure theory of international trade. First, the inter-relations between foreign trade policy and the behavior of real factor rewards have been neatly expressed in some logically true propositions. As a matter of fact, topics such as "the international equalisation of factor prices,'^1) "the effect of protection on real wages, "(2) etc., have been discussed very frequently in the literature on trade theory. Second, a few ingenious models have been developed to examine the impact of various types of growth on the terms of trade of a growing country. (3) These models are not dynamic, but comparative statics in nature, yet they constitute a definite advance over the purely static models employed in analyses of trade and factor prices. A common feature of these develop ments, however, is that both types of models have mainly utilized the two country, two-commodity, two-factor framework of the Heckscher-Ohlin theorem. The purpose of the present paper is to exploit this similarity, borrow liberally from the stock of previously accepted ideas, and then proceed to weave them into an integrated theory of the effects of changes in a country's factor-endow ment on its terms of trade and real factor rewards.