IDEAS home Printed from https://ideas.repec.org/a/ibf/beaccr/v5y2013i1p81-90.html
   My bibliography  Save this article

Integrating The Output And Substitution Effects Of Production Into The Intermediate Microeconomics Textbook

Author

Listed:
  • Ranjini L. Thaver

Abstract

Intermediate microeconomics textbooks employ indifference curve analysis to explain the income and substitution effects of a change in the price of a good x on the demand for it, holding other variables constant. Further, they demonstrate how the shape and slope of the demand curve changes depending on whether good x is defined as normal, inferior, or Giffen. This analysis in turn enables an evaluation of public policies aimed to increase consumer welfare. Unfortunately, these textbooks do not apply a parallel analysis in production theory, creating an analytical vacuum at the undergraduate level. This paper develops a model to analyze the output and substitution effects in production when the price of one input (labor) changes, holding technology, resource availability, and the price of the other input constant. This study will also address the production equivalents of normal, inferior, and possibly Giffen inputs affecting the shape and slope of the input demand curve. Such an exercise may allow students to gain a better understanding of producer and consumer theories, and encourage them to employ these concepts to real economic problems such as the effect of wage subsidies on labor demand. It should therefore be included in intermediate microeconomics textbooks.

Suggested Citation

  • Ranjini L. Thaver, 2013. "Integrating The Output And Substitution Effects Of Production Into The Intermediate Microeconomics Textbook," Business Education and Accreditation, The Institute for Business and Finance Research, vol. 5(1), pages 81-90.
    • Handle: RePEc:ibf:beaccr:v:5:y:2013:i:1:p:81-90
    as

    Download full text from publisher

    File URL: http://www.theibfr2.com/RePEc/ibf/beaccr/bea-v5n1-2013/BEA-V5N1-2013-7.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Anthony J. Makin & Sam Strong, 2013. "New measures of factor productivity in Australia: a Sato approach," Applied Economics, Taylor & Francis Journals, vol. 45(17), pages 2413-2422, June.
    2. Chow, Peter C Y, 1990. "Output Effect, Technology Change, and Labor Absorption in Taiwan, 1952-1986," Economic Development and Cultural Change, University of Chicago Press, vol. 39(1), pages 77-88, October.
    3. Christopher Ragan, 1994. "Progressive Income Taxes and the Substitution Effect of RRSPs," Canadian Journal of Economics, Canadian Economics Association, vol. 27(1), pages 43-57, February.
    4. Basil Dalamagas, 2005. "Income and substitution effects of fiscal policy on work effort," International Review of Applied Economics, Taylor & Francis Journals, vol. 19(2), pages 219-242.
    5. Hamermesh, Daniel S, 1977. "A Note on Income and Substitution Effects in Search Unemployment," Economic Journal, Royal Economic Society, vol. 87(346), pages 312-314, June.
    6. David H. Autor & Mark G. Duggan, 2007. "Distinguishing Income from Substitution Effects in Disability Insurance," American Economic Review, American Economic Association, vol. 97(2), pages 119-124, May.
    7. Toshiyuki Kako, 1978. "Decomposition Analysis of Derived Demand for Factor Inputs: The Case of Rice Production in Japan," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 60(4), pages 628-635.
    8. Tamotsu Nakamura & Yu Murayama, 2010. "A Complete Characterization Of The Inverted S‐Shaped Labor Supply Curve," Metroeconomica, Wiley Blackwell, vol. 61(4), pages 665-675, November.
    9. Zind, Richard G, 1979. "A Note on the Measurement of Technical Bias in the U.S. Economy," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 301-304, May.
    10. Hanoch, Giora & Fraenkel, Mordechai, 1979. "Income and Substitution Effects in the Two-Sector Open Economy," American Economic Review, American Economic Association, vol. 69(3), pages 455-458, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jeffrey Wolcowitz, 2014. "Linking The Substitution And Output Effects Of Production To Profit Maximization In The Intermediate Microeconomics Course," Business Education and Accreditation, The Institute for Business and Finance Research, vol. 6(1), pages 13-22.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. O'Donnell, Christopher J., 2000. "Estimating The Characteristics Of Homogeneous Functionsusing Flexible Functional Forms," 2000 Conference (44th), January 23-25, 2000, Sydney, Australia 123713, Australian Agricultural and Resource Economics Society.
    2. Bradley Hardy & Timothy Smeeding & James P. Ziliak, 2018. "The Changing Safety Net for Low-Income Parents and Their Children: Structural or Cyclical Changes in Income Support Policy?," Demography, Springer;Population Association of America (PAA), vol. 55(1), pages 189-221, February.
    3. Liebert, Helge, 2019. "Does external medical review reduce disability insurance inflow?," Journal of Health Economics, Elsevier, vol. 64(C), pages 108-128.
    4. Damiano Fiorillo & Nunzia Nappo, 2014. "Job satisfaction in Italy: individual characteristics and social relations," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 41(8), pages 683-704, August.
    5. Fuller, Frank H., 1999. "Farm-Level Feed Demand In Turkey," 1999 Annual meeting, August 8-11, Nashville, TN 21534, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Zaresani, Arezou & Olivo-Villabrille, Miguel, 2022. "Return-to-work policies’ clawback regime and labor supply in disability insurance programs," Labour Economics, Elsevier, vol. 78(C).
    7. Theodossiou, I. & Zangelidis, A., 2009. "Career prospects and tenure-job satisfaction profiles: Evidence from panel data," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(4), pages 648-657, August.
    8. de Groot, Nynke & Koning, Pierre, 2016. "Assessing the effects of disability insurance experience rating. The case of The Netherlands," Labour Economics, Elsevier, vol. 41(C), pages 304-317.
    9. Bev Dahlby & Kevin Milligan, 2017. "From theory to practice: Canadian economists contributions to public finance," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1324-1347, December.
    10. David H. Autor & Mark Duggan & Kyle Greenberg & David S. Lyle, 2016. "The Impact of Disability Benefits on Labor Supply: Evidence from the VA's Disability Compensation Program," American Economic Journal: Applied Economics, American Economic Association, vol. 8(3), pages 31-68, July.
    11. Bonnieux, F., 1988. "Spécialisation régionale et efficacité de l'agriculture," Cahiers d'Economie et de Sociologie Rurales (CESR), Institut National de la Recherche Agronomique (INRA), vol. 8.
    12. Haoming Liu & Jie Zhang, 2008. "Donations in a recursive dynamic model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(2), pages 564-582, May.
    13. Fernando S. Machado, 1995. "Testing The Induced Innovation Hypothesis Using Cointegration Analysis," Journal of Agricultural Economics, Wiley Blackwell, vol. 46(3), pages 349-360, September.
    14. Marie, Olivier & Vall Castello, Judit, 2012. "Measuring the (income) effect of disability insurance generosity on labour market participation," Journal of Public Economics, Elsevier, vol. 96(1), pages 198-210.
    15. Hans Fehr & Christian Habermann & Fabian Kindermann, 2008. "Tax-Favored Retirement Accounts: Are they Efficient in Increasing Savings and Growth?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(2), pages 171-198, June.
    16. Deuchert, Eva & Eugster, Beatrix, 2019. "Income and substitution effects of a disability insurance reform," Journal of Public Economics, Elsevier, vol. 170(C), pages 1-14.
    17. Kuroda, Yoshimi, 1995. "Labor productivity measurement in Japanese agriculture, 1956-1990," Agricultural Economics, Blackwell, vol. 12(1), pages 55-68, April.
    18. K. Obeng, 2011. "Indirect production function and the output effect of public transit subsidies," Transportation, Springer, vol. 38(2), pages 191-214, March.
    19. Monika Bütler & Eva Deuchert & Michael Lechner & Stefan Staubli & Petra Thiemann, 2015. "Financial work incentives for disability benefit recipients: lessons from a randomised field experiment," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-18, December.
    20. Boyle, Melissa A. & Lahey, Joanna N., 2010. "Health insurance and the labor supply decisions of older workers: Evidence from a U.S. Department of Veterans Affairs expansion," Journal of Public Economics, Elsevier, vol. 94(7-8), pages 467-478, August.

    More about this item

    Keywords

    Substitution Effect; Output Effect; Isoquants; Consumer Theory; Producer Theory;
    All these keywords.

    JEL classification:

    • A22 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - Undergraduate
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ibf:beaccr:v:5:y:2013:i:1:p:81-90. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mercedes Jalbert (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.