The Elasticity of Derived Demand, FactorSubstitution and Product Demand: Corrections to Hicks’ Formula and Marshall’s Four Rules
AbstractNearly 75 years ago, John Hicks introduced and formalized the concept of the elasticity of substitution between capital and labour and its relation to derived demand. The resulting formula has proven very useful in understanding the derived demand for productive factors, the distribution of factor incomes, and Marshall's Four Rules. This short paper notes that a slip occurred in the original derivation, presents a modified formula, and shows that Marshall's First Rule is no longer generally valid.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1742.
Date of creation: 2006
Date of revision:
derived demand; substitution elasticity; John Hicks;
Other versions of this item:
- Chirinko, Robert S. & Mallick, Debdulal, 2011. "The elasticity of derived demand, factor substitution, and product demand: Corrections to Hicks' formula and Marshall's Four Rules," Labour Economics, Elsevier, Elsevier, vol. 18(5), pages 708-711, October.
- A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D33 - Microeconomics - - Distribution - - - Factor Income Distribution
- J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-05 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Robert S. Chirinko & Daniel J. Wilson, 2010. "State business taxes and investment: state-by-state simulations," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, pages 13-28.
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