Wildstar,
I believe the degree of dependency of the price of the factor of production on the price of the consumer good is proportional to its degree of specificity. Yes, the price of copper should be independent of the subjectively determined value of widgets. But, if copper was used to make only widgets, gizmos, and doodads, in equal proportions, then the price of copper would be dependent on the subjectively determined value of widgets to a degree (1/3?).
No, this is wrong. There is no proportionality.
For an infinite price, there will be no demand, but a very large potential supply. For a zero price, there will be no supply, but a very large potential demand.
At some price in the middle, supply will approximate demand and this will be the market price.
At the market price, there will always be a marginal buyer and a marginal seller. The marginal buyer, the one who cannot afford to buy at a higher price, is the one who ties the market price of a non-specific factor of production to the market price of the final product that he sells. If he were to pay more, his marginal cost of production would exceed the marginal revenue he derives from the last unit sold.
The point is that if there are three uses for a non-specific factor of production, the two non-marginal buyers pay the same market price for this factor as the marginal buyer and derive a profit from the fact that the marginal product (revenue due to the factor) of the factor for their final products exceeds its market price.
The final product prices of the non-marginal factor buyers have no effect on the non-specific factor market price.
Regards, Don |
