Showing papers on "Factor price published in 1992"

Incorporating Reference Price Effects into a Theory of Consumer Choice

Abstract: Although there has been a good deal of research on incorporating the effects of reference price formation into empirical models of consumer buying behavior, little formal theoretical work had been undertaken to date This paper incorporates reference price effects into the traditional economic theory of consumer choice, and examines the effects of reference price formation on the results of the traditional theory, its marketing implications, and the implications for empirical models which examine the effects of reference price formation on actual consumer behavior Several implications of the theoretical model are empirically tested using weekly retail egg sales data from Southern California This analysis indicates that reference price formation does have significant effects on consumer behavior Furthermore, these effects are asymmetric with consumers two and a half times more responsive to egg price increases that are in excess of the reference price than they are to comparable egg price decreases

Managing price, gaining profit.

Abstract: The fastest and most effective way for a company to realize maximum profit is to get its pricing right. The right price can boost profit faster than increasing volume will; the wrong price can shrink it just as quickly. Yet many otherwise tough-minded managers miss out on significant profits because they shy away from pricing decisions for fear that they will alienate their customers. Worse, if management isn't controlling its pricing policies, there's a good chance that the company's clients are manipulating them to their own advantage. McKinsey & Company's Michael Marn and Robert Rosiello show managers how to gain control of the pricing puzzle and capture untapped profit potential by using two basic concepts: the pocket price waterfall and the pocket price band. The pocket price waterfall reveals how price erodes between a company's invoice figure and the actual amount paid by the customer--the transaction price. It tracks the volume purchase discounts, early payment bonuses, and frequent customer incentives that squeeze a company's profits. The pocket price band plots the range of pocket prices over which any given unit volume of a single product sells. Wide price bands are commonplace: some manufacturers' transaction prices for a given product range 60%; one fastener supplier's price band ranged up to 500%. Managers who study their pocket price waterfalls and bands can identify unnecessary discounting at the transaction level, low-performance accounts, and misplaced marketing efforts. The problems, once identified, are typically easy and inexpensive to remedy.

Effects of price uncertainty on consumer purchase budget and price thresholds

Abstract: This article examines how uncertainty about prices affects: (1) the budget consumers allocate for purchasing a product and (2) consumer price thresholds (i.e., the prices that are considered “too high” or a “good deal”). In an experimental setting, the purchase budget as well as the absolute values of both thresholds for uncertain subjects were higher than those for certain subjects. Moreover, a relatively large decline from the budget was needed before a price was considered a “good deal,” whereas a relatively small increase from the budget was sufficient for a price to be considered “too high.” Price uncertainty widened the difference between the upper (i.e., “too high”) price threshold and the budget, making uncertain subjects more tolerant to prices exceeding the budget than certain subjects. However, price uncertainty did not have a significant effect on the difference between the budget and the lower (i.e., “good deal”) price threshold.

Costs and Factor Substitution in the Provision of Local Fire Services

Abstract: Evidence on costs and factor substitution is presented for a sample of local fire departments in New York State. The results suggest that fire service production does not fit either Leontief, Cobb-Douglas, or CES technology. In addition, exogenous socioeconomic variables are found to significantly affect public-sector costs and the estimates of factor price elasticities. The findings of relatively low factor demand and substitution elasticities suggest that local governments may have limited flexibility in adjusting their production of fire services to minimize the impact of rising factor prices. Copyright 1992 by MIT Press.

Technological Choices and Prices, and Their Implications for the US Economy, 1963–2000

Abstract: This paper examines the influence of techological change and changing factor prices in the US economy on prices and incomes between 1967 and 2000. Dynamic input–output physical, price and income models provide the conceptual framework for the analysis. The investigation is focused on sectoral price changes, the distribution of income and outlays between capital and labor, and the changing real purchasing power of capital and labor. One major conclusion is that the shares of national income earned by labor and capital have remained relatively constant over the entire period due to offsetting changes which are explicitly identified. At the same time, labor's purchasing power has not increased as much as that of capital.

Price Dispersion In U.S. Manufacturing: Implications For The Aggregation Of Products And Firms

Abstract: This paper addresses the question of whether products in the U.S. Manufacturing sector sell at a single (common) price, or whether prices vary across producers. Price dispersion is interesting for at least two reasons. First, if output prices vary across producers, standard methods of using industry price deflators lead to errors in measuring real output at the industry, firm, and establishment level which may bias estimates of the production function and productivity growth. Second, price dispersion suggests product heterogeneity which, if consumers do not have identical preferences, could lead to market segmentation and price in excess of marginal cost, thus making the current (competitive) characterization of the Manufacturing sector inappropriate and invalidating many empirical studies. In the course of examining these issues, the paper develops a robust measure of price dispersion as well as new quantitative methods for testing whether observed price differences are the result of differences in product quality. Our results indicate that price dispersion is widespread throughout manufacturing and that for at least one industry, Hydraulic Cement, it is not the result of differences in product quality.

A general equilibrium based social policy model for Cote d'Ivoire

Abstract: This paper describes a general equilibrium based social policy model for Cote d'Ivoire whose aim is both to facilitate analysis of a wide range of social policy options, any of which could conceivably be pursued in Cote d'Ivoire over the next five or ten years, and to provide a basis for further model development to cover explicit monetary, macro, and stabilization issues which are central to current Ivorian policy debate. As it now stands, the model is a classical real side general equilibrium model in the public finance tradition, modified to capture such key Ivorian features as domestic price stabilization schemes, large interhousehold transfers, the informal sector, and other features. The model allows for detailed analysis within a general equilibrium framework. This also captures relative price effects, financing implications, resource allocation, and other economy-wide effects missing in existing work on targeting policies. The paper describes the model in great detail by giving examples of its application, first by analyzing the tax incidence in Cote d'Ivoire, and second by evaluating the anti-poverty programs. The authors draw conclusions from the model and plot a path for the future.

Cognition, Value, and Price: A General Theory of Value

Abstract: An explanation of the modern consumer economy that connects price theory and value formation

Marshallian Cross Diagrams and Their Uses Before Alfred Marshall: The Origins of Supply and Demand Geometry

Abstract: Undoubtedly the simplest. and most frequently used tool of microeconomic analysis is the conventional partial equilibrium demand-and-supply-curve diagram of the textbooks. Economics professors and their students put the diagram to at least six main uses. They use it to depict the equilibrium or market-clearing price and quantity of any particular good or factor input. They employ it to show how (Walrasian) price or (Marshallian) quantity adjustments ensure this equilibrium: the first by eliminating excess supply and demand, the second by eradicating disparities between supply price and demand price. They use it to illustrate how parametric shifts in demand and supply curves induced by changes in tastes, incomes, technology, factor prices, and prices of related goods operate to alter a good’s equilibrium price and quantity. They apply it to show how the shifting and incidence of a tax or tariff on buyers and sellers depends on elasticities of demand and supply. With it they demonstrate that price ceilings and price floors generate shortages and surpluses, respectively. Finally, they employ it to compare the allocative effects of competitive versus monopoly pricing and to indicate the welfare costs of market imperfections.

A model of latent symmetry in cross price elasticities

Abstract: This paper develops the Latent Symmetric Elasticity Structure (LSES), a market share price elasticity model which allows elasticities to be decomposed into two components: a symmetric substitution index revealing the strength of competition between brand pairs, and a brand-specific coefficient revealing the overall impact of a brand on its competitors. An application of the model to unconstrained cross price elasticities shows that brand-price competition in one market is well-represented by a LSES model in which brand substitutability and elasticity asymmetry are related to average price level.

Factor‐Price Equalization By Trade In Joint and Non‐Joint Production

Abstract: Sans joint products, relative factor prices do determine relative goods prices. Free trade in goods thus can hope to equalize factor returns when this relationship is monotone and therefore uniquely reversible. However, when joint production obtains, often the same relative factor prices can entail an infinity of relative goods prices depending upon the composition of tastes and demand. In consequence, trade's equalization of goods prices is compatible with factor-returns inequality. Generic and singular relationships are described.

Some evidence on lump sum versus convex costs of changing prices

Abstract: 2 Two models in which price stickiness results from price adjustment costs are tested. One, an (s,S) pricing model, assumes lump-sum adjustment costs and predicts firms will make relatively large, infrequent price changes. The other assumes convex adjustment costs and predicts frequent, partial price adjustments. Survey data of firms'price behavior reveal patterns consistent with the (s,S) model. However, many of the patterns are also consistent with partial-adjustment rules, although the high percentage of firms which fix prices for a quarter or more casts doubt on the plausibility of the partialadjustment hypothesis. I. INTRODUCTION In "new" Keynesian economics "price stickiness" arises not because of wage rigidity so much as because either the gains to individual firms from changing prices are negligible or the costs of doing so deter full and immediate price changes. As a result, nominal shocks which affect demand for the firm's product, as well as real shocks, give rise to changes in output. The nature and the timing of the effects of demand changes, such as those initiated by monetary policy, thus depend on how individual firms respond to the signals they receive. Sticky-price models based on costs of price adjustment take at least two different forms. One assumes a lump-sum cost to changing prices, which leads to predictions that firms generally keep prices fixed and make infrequent, relatively large price changes. The other assumes convex adjustment costs and leads to the prediction that firms make relatively small and frequent partial adjustments toward a target level. Evidence drawn from a series of surveys conducted by the National Federation of Independent Business will be used to test the predictions from these two types of models. While the data do not allow a definitive test between the two models, the available evidence supports the model with lump-sum costs of changing prices with the important proviso that there be substantial heterogeneity in the relative costs to firms of making price changes so that the frequency and size of changes vary considerably across firms. II. (s,S) RULES WITH LUMP-SUM COSTS OF PRICE CHANGES How frequently should a firm change its price? When a change takes place, how large should it be? Sheshinski and Weiss [1977] and Barro [1972] provided the first answers to these questions. In their models an individual firm incurs a lump-sum cost when changing its nominal price, and the firm's profits depend on its real price, where real price is defined as the firm's nominal price divided by an index of the prices of all other firms in the economy. Sheshinski and Weiss assume that the firm tries to maximize the present value of its real profits. Their solution amounts to what is known in the optimal inventory literature as an (s,S) rule, in which S-s units are ordered when stocks run down to s. As applied to a pricing rule, when prices rise elsewhere in the economy, the firm's real price falls to a lower bound s, at which point the firm raises its nominal price so that its real price jumps to S. They prove that a more rapid general inflation rate calls for a lower s and higher S. Furthermore, subject to a monotonicity condition, a higher general inflation rate calls for a shorter time between price changes. After showing a number of numerical examples, Sheshinski and Weiss report "that numerical experiments with a quadratic profit function ... give high intervals between price changes (1-2 years) even with very low adjustment costs" [1977, 300]. When the profit function is flat in the neighborhood of the profit-maximizing real price, there is little benefit from changing price. A similar argument appears in the "menu cost" explanation for real effects of nominal disturbances. In the absence of private incentives for individual price changes, there may be real aggregate effects of nominal disturbances. For example, see Mankiw [1985], Akerlof and Yellen [1985], Kuran [1986], Blanchard and Kiyotaki [1987]. …

Microeconomic Rigidities and Aggregate Price Dynamics

Abstract: This paper is an attempt to enrich the characterization of the sluggish behavior of the aggregate price level. Our contribution to this vast literature is to explicitly consider microeconomic heterogeneity and its interaction with nonlinear microeconomic price adjustment policies. The model we propose outperforms the constant-probability-of-adjustment/partial- adjustment model in describing the path of postwar U.S. inflation. Using only aggregate data, we infer that the probability that a firm adjusts its price depends on the sign and the magnitude of the deviation of the price from its target level. At the aggregate level we find that the aggregate price responds less to negative shocks than to positive shocks, that the size of this asymmetry increases with the size of the shock, and that the number of firms changing their prices - and therefore the flexibility of the price level to aggregate shocks - varies endogenously over time in response to changes in economic conditions.

Jointness In Production and Factor‐Price Equalization *

Abstract: This paper argues that the presence of activities which yield outputs jointly does not damage the case for factor-price equalization. the crucial condition for equalization is similar to that in the no-joint production case: the number of common activities with independent input vectors that are actively used in both countries at least match the number of factors, and factor endowments lie sufficiently close. Indeed, joint production may increase the range of commodity prices for which factor prices are equalized by commodity trade.

Alternative industrial strategies and effects of fiscal incentives and trade policy in achieving employment objectives in Malaysian industrialisation.

Abstract: This study is concerned with alternative industrial strategies for employment creation. The two strategies are export-oriented and import substitution industrialisation. Malaysia tried the import substitution strategy and achieved some degree of success in the period 1957 to 1970. But with high unemployment and the limitation of the domestic market, another strategy then had to be pursued. So in the early 1970s, (emulating the newly industrialised countries) Malaysia embarked on an export-oriented industrialisation strategy. Two instruments are used by the Malaysian government to promote those strategies; fiscal incentives and trade policy. The study finds that fiscal incentives have promoted export-oriented industrialisation. Trade policy initially helped import substitution but in later years the policy was liberialised to approach a free trade regime. The effects of these two instruments are examined through their influence on the cost of capital to manufacturers. The study finds that fiscal incentives have reduced capital cost much more than trade policy. The study then examines the manufacturing sector's ability to generate employment. Two methods are used; an estimation of elasticity of substitution and a case study of the characteristics of export-oriented and domestic-oriented establishments. The elasticity of substitution measures flexibility to absorb labour. The estimates show that export-oriented establishments have greater substitution possibilities than domestic-oriented ones. These estimates are substantiated by qualitative information, namely establishments responses to policy changes. This information is obtained through a detailed study of establishments characteristics. Two industries - textiles and electrical/electronics - were chosen as case studies. The characteristics show that in general export-oriented establishments can absorb more labour through high growth rates and employment size. Thus, export-oriented industrialisation can generate more employment than import substitution because its elasticity of substitution is larger and there is higher absorption of labour by export-oriented establishments. The thesis suggests two ways to increase employment: first, to promote EOI because its employment potential is greater than ISI, and second, to increase the proportion of labour used through changes in relative factor price because capital-labour substitution exists. The labour coefficient can be increased by 8 - 25 per cent if factor market distortions are eliminated. This increase represents 120,000 to 360,000 new jobs in the Malaysian manufacturing sector. Two policy thrusts are suggested for the promotion of EOI: (1) Liberalisation of trade policy, namely the reduction not only of average tariff but also its dispersion. The present low and stable exchange rate regime should be maintained, because it encourages exports. (2) Reform of the fiscal incentive system. More direct and indirect exporting industries should be added to the list of promoted industries/activities. In addition, new export incentives should be introduced such as providing utilities for exporters at levels equal to other competing countries and benefits of existing ones increased. Relative factor prices can be changed through trade policy and fiscal incentives. The import duty (tariff) on machinery and equipment should be reduced and exemption of import duty withdrawn, so that capital prices move closer to world levels. One of the fiscal incentives, the Investment Tax Allowance, should stop because its benefits directly favour capital users. On the other hand, benefits to labour users should be introduced, for example the government should offer an abatement of income for labour incentive to support labour use.

Price Reform in China, 1979–86

Abstract: Part 1 Historical and international context: introduction Socialist pricing East European experience East European experience Chinese experience to 1978. Part 2 From adjustment towards liberalization: goals of price reform positions on price reform debates on price reform package three stages of price reform price reform in 5 commodities summary. Part 3 Administrative price reform in theory and practice: price formation principles pre-1978 practice practice during 1979-86 institutional conflicts and problems summary. Part 4 Price regulation in intersectoral total output: effect of direct and indirect planning on output cotton coal summary. Part 5 Price regulation in intra-sectoral output composition: coexistence of shortages and surpluses production and consumption influence of prices non-price influences evaluation of new policy summary. Part 6 Evolution of dual pricing: objects and purposes development of dual pricing respective scopes of fixed and free price regulation short term effects problems of administrative management theoretical debates and new policy summary. Part 7 Price-responsiveness of state enterprises: theory pre-reform reality development of dual dependence firms after 1979 theoretical post-reform models the mixed market model - bicycles and chemical fertilizers the sellers' market model - steel and coal summary. Part 8 Summary and conclusion: characteristics of Chinese price reform achievements and problems future development and obstacles.

Factor Price Shocks, Factor Substitution and Their Implications For Policy

Abstract: The effects of a change in the government's pricing policy and external price shocks on factors demand is predicted through the estimation of elasticities of factor substitution and price elasticities of factor demand. A Translog Cost Function is utilized to derive the estimates of these elasticities. Our estimates of economies of scale for two sub-periods suggest that significantly large economies of scale were available in the post-energy shock period compared to the pre-energy shock period.[O12]

Multiplier Analysis with Flexible Cost Functions

Abstract: The aim of this paper is to extend the computation of price multiplier matrices to encompass alternative factor substitution assumptions. Since classical multiplier analysis disregards attempts by firms to adapt to changing relative factor prices, estimated price effects will be overvalued. By allowing a choice of techniques, however, we may attain a better understanding of the cause-effect mechanism linking commodity prices with exogenous changes in factor prices.

Influence of Interindustrial Relationships on Prices in Czechoslovakia

Abstract: Price elasticities and an input–output decomposition of price changes are investigated in this paper. They describe the relationships between the material flows, financial flows and prices, and allow the factors determining price development to be identified. For the Czechoslovak economy the computed price elasticities express a rigidity of income and production sensitivities on prices. These price elasticities also show a rigidity of important interindustrial relationships with respect to price development in the whole time period investigated. Results from the input–output decomposition of price changes indicate the importance of a decrease in complex coefficients as an anti-inflation factor in the intermediate goods market. From the standpoint of transformation to a market economy the results have a special meaning in view of the need for a well-functioning intermediate goods market as one of the basic assumptions for convergence to a prosperous market system in the whole national economy.

Uncertainty, price stabilization and welfare

Abstract: This paper investigates whether a small country facing foreign price instability benefits from active stabilization of the domestic price of the importable. If the random tariff revenue is rebated ex post, domestic price stabilization increases income instability, and nonintervention is optimal. If an ex ante rebating scheme is employed, a small country can benefit from domestic price stabilization, and there exists a partial stabilization policy that dominates free trade. Partial stabilization of the domestic price with the ex ante rebate requires a variable import levy inversely related to the foreign price.

Migration and International Factor Price Equalization

Abstract: In traditional models of international trade, equalization of factor prices takes place via equalization of commodity prices, i.e. without international trade commodity prices and consequently, factor prices will not be equalized at all. Here it is demonstrated that, all other things being equal, international migration tends to equalize national factor prices and factor shares even in the absence of international trade. Constant rates of net migration tend to equalize national population growth rates, and this in turn tends to equalize national factor prices and factor shares.

The egyptian state and agricultural land market 1810–1986

Abstract: The paper examines the economic effects of state policy on land transactions in Egyptian agriculture since 1810, with special reference to the post-1952 government intervention in the land market. Following a combination of historical and econometric approaches, the analysis shows that: (i) under conditions of market forces, factor prices responded to changes in land-labour ratio, cotton price and output value, and landlords' monopoly power was dominant; (ii) while the inequality was sharply reduced after equity-directed intervention, value productivity of the scarce factor, land, has lost its significance in determining rental values and the effective supply of land has, since 1970, declined together with agricultural growth rates; and (iii) there has been a trade-off between equity and agricultural growth during periods of non-intervention and relaxation of tight State control of the land market. Proposals for policy adjustment are presented.

PRICE LEADERSHIP IN THE SOUTH AFRICAN CARBOHYDRATE MARKET / Prysleierskap in die Suid-Afrikaanse koolhidraatmark

Abstract: Price determination is of vital concern for producers and distributors, and is an important element for the buying public. The effective functioning of the SouthAfrican carbohydrate marketing system is analysed by means of price leadership, a useful tool for reviewing price control issues. Price leadership depends on removing the deterministic nature of time-series, filtering and causality determination. The national carbohydrate market shows strong mutual dependence, with white bread the price leader. The high mutual dependence and cross-price effects show that price intervention reduce market performance.