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Simple Analytics of Productive Consumption

  • Suen, Wing
  • Mo, Pak Hung

The shadow price of a productive good is equal to its money price less its marginal product. As more of the good is consumed, its shadow price rises because of diminishing productivity and the consumer's full income also rises because the marginal product is positive. The direction of the overall bias induced by endogenous prices and income is found to be determinate. The authors demonstrate that the demand for productive goods tends to be relatively unresponsive to exogenous changes in prices and income. Similarly, labor supply will be relatively unresponsive to wage and unearned income if market work causes fatigue. Copyright 1994 by University of Chicago Press.

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File URL: http://dx.doi.org/10.1086/261936
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Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 102 (1994)
Issue (Month): 2 (April)
Pages: 372-83

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Handle: RePEc:ucp:jpolec:v:102:y:1994:i:2:p:372-83
Contact details of provider: Web page: http://www.journals.uchicago.edu/JPE/

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