So far, we have generally assumed that the input prices facing the firm were given, although we observed that a firm’s expansion could lead to a change in input prices (see Section 6.6). Taking input prices as given, determined by mechanisms we have not yet investigated, enabled us to develop a basic theory explaining why product prices change in relation to each other, and how they respond to given changes in input prices. It is now time to reverse the assumptions and take product prices as given and analyse the determination of input prices. This chapter investigates the demand for inputs. Chapter 8 looks at the supply of those inputs provided by consumers, and Chapter 9 at the overall determination of input prices. Chapter 10 analyses the simultaneous determination of product prices and input prices.
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