Showing papers on "Factor price published in 1975"

Spatial Price Discrimination, Competition and Locational Effects

Abstract: Spatial price theory has typically assumed homogeneous gross demand curves among buyers who are dispersed over an economic landscape. Subtracting varying costs of distance to their locations yields a set of heterogeneous net demand curves. Any spatial monopolist subject to these conditions faces separable markets which are characterized by different effective demands. As a result price discrimination is feasible, and in theory straight-lined delivered price schedules of less than unit slope per unit cost of distance are customarily derived. But do spatial competitors ever discriminate (or appear to discriminate) over economic space? And if they do, what is the form of their delivered price schedules? Would their schedules also be linear given the same demand conditions that generate linear schedules for a discriminating monopolist? Without answering questions such as those raised above anti-trust regulations dealing with unfair price practices and, in particular, the determination of what is legal or illegal, ethical or not, cannot be readily accepted by economists. The present paper is designed to provide a basis for answering such questions by uncovering selected properties of spatial price discrimination under conditions of varying intensities of competition over an economic space. More generally, the paper is designed to determine the effect on prices of rival locations and the intensity of their competition. Sharp contrasts between spaceless and spatial price theory will thus be drawn, with competitive differences over the seller's trading area being revealed to generate differential discriminatory prices over the landscape. [Авторский текст]

Our new monetary standard: the measurement and effects of price uncertainty, 1880–1973*

Abstract: U. S. annual inflation rates over the last century are analyzed in an attempt to compare price unpredictability in the recent period with that during the 1880–1915 gold standard period. The movement from negative price change autocorrelations in the earlier period to strongly positive price change autocorrelations in the recent period, is shown to imply an upward shift in the amount of long-term relative to short-term price uncertainty. Empirical evidence on the relationship between the demand for money and actual price change, on the adjustment of interest rates to price changes and on the change in the composition of new corporate debt issues is presented. Evidence suggests that only over the last decade has the public generally recognized the fundamental change from a commodity to a fiduciary standard that has occurred in the underlying monetary framework.

Competitive Firm and the Theory of Input Demand under Price Uncertainty: Comment

Abstract: In a recent paper Batra and Ullah (1974) investigate a competitive firm's demand for factors of production when all inputs are chosen before the output price is observed. They conclude (p. 547) that \"the risk-averse firm utilizes smaller quantities of inputs . . . than a firm operating under certainty\" and that \"the marginal and overall impacts of uncertainty need not be the same for input demand.\" In this note I show that the first of these conclusions is incorrect and then argue that the marginal and overall impacts of uncertainty are the same provided the firm's von Neumann-Morgenstern utility function exhibits decreasing absolute risk aversion. The model and notation I use are the same as in Batra and Ullah. From the first-order conditions Batra and Ullah correctly show (p. 541) that r < jufK(K, L) (1)

Factor Price Changes and Factor Substitution in an Evolutionary Model

Abstract: This paper argues that economists have been schizophrenic regarding the theory of the firm in a competitive industry In much (but not all) of their formal mathematical modeling, maximization and equilibrium are taken literally Ordinarily, however, both maximization and equilibrium are interpreted as tendencies in the verbal articulation Such a "tendency" theory, which is thought by many economists to be closer to reality, is believed to be intrinsically difficult to formalize in such a way as to obtain verifiable theorems -- for example, that a shift in the ratio of the factor prices will induce the industry to change factor proportions in the opposite direction This paper offers a more optimistic view of the prospects for formalizing this tendency approach A formal evolutionary model is presented in which essentially neoclassical conclusions regarding the effect of factor prices on factor ratios are deduced without any recourse to concepts either of maximization or industry equilibrium

The Two Price Systems in the Copper Industry

Abstract: During three periods from the end of World War II through 1970, some or all of the major copper producers held their price below the level that would have cleared the market and rationed their "available supplies." The central question posed by the two price systems is that of why any of the major producers would ever choose to ration. Bound up with this issue is the question of why several of the major producers rationed at times when the others did not. Two circumstances in which rationing may be profitable are identified. First, it is shown that rationing may be a profitable response to a large, unanticipated increase in demand if there is long-run substitution in demand; capacity cannot be quickly expanded; marginal cost is increasing; and price discrimination is infeasible. Second, it is shown that a partially integrated copper producer may find rationing profitable as a means of partially achieving the effects of price discrimination given that price discrimination itself is infeasible. Taken together, these motives for rationing provide an internally consistent set of hypotheses that account for the broad features of the two price systems. It is suggested on the basis of structural characteristics of the industry that these hypotheses are valid. However, the argument is not conclusive, so it can be claimed only that the results obtained provide a plausible explanation of the two price systems.

Inflation Accounting: What Will General Price Level Adjusted Income Statements Show?

Abstract: The most significant and persistent complaint about published financial statements in recent years has been that they do not recognize the economic facts of life. Inflation is a reality throughout the world, yet its effects go unrecognized in financial statements prepared in accordance with generally accepted accounting principles in the United States and in most of the other countries of the Western World. Inflation distorts all financial statements, but primary attention in the many public discussions of this topic is usually focused on the way inflation affects reported income. This article analyzes the likely income statement effects of recording inflation adjustments. Two different approaches to adjusting for inflation have been suggested in the accounting literature. One substitutes for the recorded historical cost data of each of the items in the financial statements the current cost. The other adjusts the recorded historical cost data for changes in the value of the monetary unit since each item was acquired. The former deals with specific price changes of individual items, the latter with changes in the general price level. Since most adjustments are made by the use of price indexes, the first approach relies on indexes of specific prices, the second on an index of the general price level. The appendix of this article explains and illustrates the essentials of both approaches. The current cost approach is conceptually superior (and presents more meaningful statements) in our view, but the general price-level approach has received authoritative support because of its greater objectivity and auditability. In both the United States and the United Kingdom, the authoritative accounting bodies are currently considering the question of general price-level adjusted financial statements and may issue pronouncements requiring their publication in the near future. In both countries, the general pricelevel statements would be supplemental to the conventional unadjusted historical cost statements. 1 Since general price-level adjusted statements are likely to be the only adjustments for inflation with official sanction, the rest of the body of this article is concerned with the effect of such adjustments on reported earnings. (Some of the results of using current cost adjustments are illustrated in the appendix.) In the remaining sections we analyze the effects of general price-level adjustments on the 30 Sidney Davidson, Arthur Young Professor of Accounting, University of Chicago, is currently on leave as a Fellow of the Center for Advanced Study in the Behavioral Sciences, Stanford, California. Roman L. Weil is Mills B. Lane Professor of Industrial Management, Georgia Institute of Technology. The authors thank Christine Ciarfalia and Samy Sidky for their research assistance and the Ford Foundation Faculty Research Fund of the Graduate School of Business of the University of Chicago and the National Science Foundation for research support. They thank Richard M. Cyert, Yuji Ijiri, and Mary Peeler for various kinds of help. 1. Footnotes appear at end of article. (Pp. 83-84)

International factor mobility, nontraded goods, and the international equalization of prices of goods and factors'

Abstract: Within the context of a world where some goods may be nontraded and some factors may be internationally mobile, this paper analyzes the conditions under which trade in factors can replace trade in goods in the presence of tariffs or taxes. The crucial issue regarding the perfect substitutability between trade in goods and trade in factors turns out to be whether the sufficient conditions for international equalization of prices of goods and factors are exactly met, not met, or met in excess. THE TOPIC OF international equalization of factor prices has been widely discussed in the literature, starting with P. A. Samuelson in 1948 [4]. However, the treatment of the problem has consistently been restricted to the case where all goods are being traded and all factors are immobile between countries. A breakthrough came with Ken-Ichi Inada's article "The Production Coefficient Matrix and the Stolper Samuelson Condition [2]. There he accepts that some goods may not be traded between countries, and then shows at what level, and how many, nominal factor rewards governments should fix through intervention in order to obtain international equalization of prices of goods and factors (IEPGF). In Section 1 of this paper we extend Inada's results to include the possibility of international factor mobility, thus eliminating the necessity of government fixing of factor rewards in order to get IEPGF. We will thus be looking for sufficient conditions for IEPGF when some goods are nontraded and some factors are internationally mobile. In Section 2 we analyze some of the implications of models where the sufficient conditions for IEPGF which we found in Section 1 are either not met, exactly met, or met in excess. In particular, we will show that the results obtained by Robert Mundell [3] about perfect substitutability between goods movements and factor movements are due to the fact that he is working with an overdetermined model, in the sense that the sufficient conditions for IEPGF are met in excess. We will be only concerned with the case where the total number of goods equals the total number of factors. It is assumed that each country produces the same n goods with the help of the same n factors under linear homogeneous production functions which are identical for all countries. All n factors are used in some positive amount in the production of each good. Of the n goods, k < n are traded;

Psychic costs and factor price equalization

Abstract: There has been some perplexity among economists over the failure of interregional wage differentials to approach zero over time in an economy characterized by labor mobility. Johnson [7], and Sjaastad [14], among others, have hypothesized declining wage differentials among regions and have puzzled over contrary empirical results. It has generally been assumed that labor will flow toward regions paying the highest wage rate. This equilibrating framework has dominated economic thought on this problem area and has directed research along narrow market-oriented lines. The hypothesis of this paper is that nonmarket considerations, specifically psychic costs, are a major force in preventing a market-directed flow of human resources. Moreover, “nonoptimal” allocation of human resources results from differences in workers' perceptions of utility between various regions.

Fiscal financial intervention, factor prices and factor proportions : a review of issues

Abstract: An examination of the limitations to the scope for factor-price intervention to shift to efficient factor combinations with more employment per unit of capital in LDC economies indicates the features of the fiscal and financial systems that contribute to or alleviate market distortions and the scope of fiscal and financial policy in correcting factor price distortions. Once the problems that hinder econometric estimates of the scope for capital-labor substitution are understood, one can approach the four main limitations to the scope of factor-price intervention. Limitations are found in the low empirical and theoretical yield from the immense amount of work on production-function estimates of capital-labor substitution and in the failure of detailed microstudies to provide a viable alternative. Limitations associated with producer response to factor prices involve monopolistic and oligopolistic conditions in which producers are likely to dilute their cost-minimizing behavior with other considerations. Finally, limitations in the area of fiscal and financial interventions are associated with assumptions concerning complete capital malleability, extreme factor supply elasticities, and unified factor markets. Numerous references.

Price Changes in a Dual Economy

Abstract: One of the frequently mentioned features of postwar Japanese economic growth concerns divergent changes in the sectoral wholesale price indexes: the price index for the "modern" sector has decreased slightly or remained constant, whereas the price index for the "nonmodern" sector has registered a rapid increase, especially in the 1960s. A rapid rise in the latter price index has been one of the main reasons for the sharp increase in the consumer price index. The modern sector includes large manufacturing enterprises and the nonmodern sector refers to primary industry and small-scale manufacturing enterprises.

Grain reserves and price stabilization

Abstract: This staff paper describes research on grain reserve stocks as a means of achieving price stability. It is assumed that price stabilization is desirable and the question of desirability is not investigated in this study. The paper is divided into two parts: Part I: Concept and Measurement of Price Instability and a Model of Price-Stocks relations Part II: A Model of Optimal Buffer Stocks for Price Stabilization -- Theory and Computation

Endogenous Labor Supply, Rigid Factor Prices And A Second Best Solution

Abstract: The conventional wisdom asserts that distortions due to factor price rigidities should be eliminated by subsidies. However, we argue that the success of this policy rests upon the fact that the return to the factor is a pure rent. If factor supply is endogenous, then subsidies to employers and taxes on factor owners are needed to support the optimal solution. Since we believe this policy combination works only by assuming away the problem, we then devise a model to study the optimal policies in a second best world. Our results show that, in general, both factor subsidies (or taxes) and export subsidies (or taxes) are needed to achieve this constrained optimum.

Theory of Costs

Abstract: Cost functions are derived functions. They are derived from the production function, which describes the available efficient methods of production at any one time.