ABSTRACT
This chapter deals with the relationship between factor proportions, factor prices, and commodity prices. It analyzes the relationship between factor prices and the optimum labor/land ratios. It also analyzes the relationship between factor prices and commodity prices. The analysis has been concerned with the relationships between optimum factor proportions, factor prices, and commodity prices implicit in the given technological possibilities of production. In a particular economy, however, with a given factor endowment, only a limited range of the techniques available can actually be used efficiently. Within the range of variation permitted by technology and factor endowment, the equilibrium factor-price ratio and the equilibrium commodity-price ratio will be determined by the forces of demand. Assuming, for simplicity, that demand conditions are given by a social indifference map, the complete general-equilibrium solution can be summarized.
