The Determination of Relative Input Prices

Abstract

In Chapter 7, we described the derivation of a firm’s demand for any input that it might plan to buy; in Chapters 8 and 9, we derived the individual’s supply of any productive service that he might plan to sell. By aggregating these, we obtained the total or market demand and supply schedules respectively. The total demand for an input summarises the role that the firms that buy (or might buy) it play in determining its relative price as they implement their purchase plans. The price-determining role of the sellers of inputs is summarised in the total supply curve of each input. In this chapter, we shall describe how these roles are played, both in the short-run and in the long-run.