PRICE FLEXIBILITY AND FULL EMPLOYMENT OF RESOURCES
A DISCUSSION of the role of price flexibility in the functioning of the economy must begin with, a definition of terms. The phrase "price flexibility" is subject to two possible interpretations which need to be sharply distinguished. These are (a) structural price flexibility1 and (b) cyclical price flexibility.2
By structural price flexibility I mean the long-term secular adjustment in the price structure. It is concerned not with the level of prices, but with the interrelation of individual prices. Thus, for example, changes in technology and the methods of production continually alter the unit cost of production of one commodity relative to other commodities. The cost of producing an automobile has, by reason of changes in technique and mass production methods, fallen greatly in the last two decades relative to the unit cost of production of the great bulk of manufactured commodities. Structural price flexibility implies an adjustment of prices to changes in unit costs3 springing from unequal rates of____________________
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Book title: Fiscal Policy and Business Cycles. Contributors: Alvin H. Hansen - Author. Publisher: W W Norton & Company Inc. Place of publication: New York. Publication year: 1941. Page number: 313.
This material is protected by copyright and, with the exception of fair use, may not be further copied, distributed or transmitted in any form or by any means.