This note investigates the relationship between commodity price changes and factor rewards in a specific factor production model that admits variable returns to scale. The principal result is that in the presence of variable returns to scale the so-called 'neoclassical ambiguity' may be resolved without resorting to detailed knowledge of the mobile factor's preferences. That is to say, the effect of a commodity price change may (as it does with the returns to those factors specific to each industry) raise or lower the real reward of the mobile factor in terms of either commodity, depending only on the characteristics of the technology.
ASJC Scopus subject areas
- Economics and Econometrics