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Factor price
About: Factor price is a research topic. Over the lifetime, 2764 publications have been published within this topic receiving 86176 citations.
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TL;DR: In this article, the authors suggest that if customers react slowly to price changes and credit markets are imperfect, prices may be unchanged or even fall when demand increases, and that firms can compete more intensely for customers without increasing their borrowing.
Abstract: According to standard theory, an increase in demand should raise prices of goods, given factor prices. Empirically, however, prices appear to be unaffected by short-run variations in demand. This paper suggests an explanation of this observation. If customers react slowly to price changes and credit markets are imperfect, prices may be unchanged or even fall when demand increases. The reason is that when demand is high, profits are high, and firms can compete more intensely for customers without increasing their borrowing. Copyright 1991 by The London School of Economics and Political Science.
73 citations
TL;DR: In this article, the authors analyzed the gains from price stabilization in the case where supply decisions are made before the actual market price is known and so are based on price expectations, and showed that price stabilization provides an overall welfare gain that is higher than when supply depends upon actual prices.
Abstract: The gains from price stabilization are analyzed in the case where supply decisions are made before the actual market price is known and so are based on price expectations. Two expectations generating mechanisms are considered—the "adaptive" scheme and the "rational" hypothesis. In both cases price stabilization provides an overall welfare gain that is higher than when supply depends upon actual prices. The distribution of these gains among producers and consumers is shown to depend crucially upon how the expectations are generated, as well as the source and autoregressive properties of the random price fluctuations.
73 citations
TL;DR: In this article, the authors examine the evidence for nonlinear price behavior in retail goods prices across U.S. cities and find that price discrepancies between U. S. cities are stationary and nonlinearly mean-reverting to price parity.
Abstract: This paper examines the evidence for nonlinear price behavior in retail goods prices across U.S. cities. First, a simple continuous-time model is used to explore the types of price behavior that can arise in the presence of market frictions. These frictions could be interpreted as transport costs, but we prefer a broader interpretation in which the frictions operate at the level of technology and preferences. Second, we gather price data from 24 U.S. cities on individual goods like orange juice and toothpaste. The empirical analysis reveals that price discrepancies between U.S. cities are stationary and nonlinearly mean-reverting to price parity.
73 citations
TL;DR: In a dynamic economy land and capital serve not only as factors of production but also as assets which individuals use to transfer income from working periods to retirement as mentioned in this paper, and changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and on the composition of output as they do in a static framework.
Abstract: In a dynamic economy land and capital serve not only as factors of production but as assets which individuals use to transfer income from working periods to retirement. Changes in the terms of trade and in the endowments of fixed factors do not necessarily have the same effects on factor prices and on the composition of output as they do in a static framework. Changes in these variables affect both total savings and the amount of savings that is diverted toward investment in capital. Results derived from the traditional specific-factors model are more likely to emerge when the sector using land as a factor of production has a higher labor share than the sector using capital. In this case the land-using sector dominates factor markets more than asset markets. Once the roles for land and capital as assets are recognized, the possibility of natural resource booms that reduce steady-state welfare arises. At the same time, an increase in population can raise steady-state welfare.
73 citations
TL;DR: In this article, the sensitivity of the optimal price path of a new durable product to the price expectations of consumers is examined, and it is shown that the price path is cyclical with the following properties: at the beginning of the cycle, the price is at its highest level; it falls monotonically over time reaching a low price at the end of a cycle equal to the reservation price of the consumers willing to pay less.
Abstract: In this paper the sensitivity of the optimal price path of a new durable product to the price expectations of consumers is examined. Consumers enter the market every period in a diffusion type framework. During the initial periods more consumers enter the market due to word of mouth influence, but in the latter periods saturation effects set in. The entering set of cohorts form expectations about future prices; and in a stable equilibrium, these expectations are fulfilled. It is shown that the price path is cyclical with the following properties: at the beginning of the cycle, the price is at its highest level; it falls monotonically over time reaching a low price at the end of the cycle equal to the reservation price of the consumers willing to pay less; the cycle lengths are not equal. The sensitivity of the optimal price path to model parameters is explored through a numerical procedure.
73 citations