Simple Analytics of Productive Consumption

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. (This abstract was borrowed from another version of this item.)