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Marshall's Rules for Derived Demand: A Critique and a Generalisation

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  • Pemberton, James

Abstract

This paper demonstrates that Alfred Marshall's four rules for the determinants of the elasticity of derived demand, as amended by John R. Hicks, are inapplicable except in special circumstances, such as Cobb-Douglas technology. Generalized versions of the rules are derived for the more normal case in which cost shares are determined endogenously as an outcome of the maximization process. Numerical examples illustrate that the standard Marshall-Hicks rules yield wrong answers for a range of parameter values. Copyright 1989 by Scottish Economic Society.

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  • Pemberton, James, 1989. "Marshall's Rules for Derived Demand: A Critique and a Generalisation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 36(4), pages 396-405, November.
    • Handle: RePEc:bla:scotjp:v:36:y:1989:i:4:p:396-405
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    Cited by:

    1. Peichl, Andreas & Popp, Martin, 2022. "Can the Labor Demand Curve Explain Job Polarization?," IAB-Discussion Paper 202221, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    2. Christiane Baumeister & Gert Peersman, 2013. "Time-Varying Effects of Oil Supply Shocks on the US Economy," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(4), pages 1-28, October.

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