Substitutability cheatsheet¶
The tables summarize input choice and factor payments at a fixed technology \(Y=zF(K,L)\). Unless stated otherwise, assume positive factor prices, a smooth constant-returns technology, and an interior cost minimum. Price responses hold output and technology fixed; endowment responses let factor prices adjust to competitive marginal-product payments. All derivatives are local: \(\sigma\) and the shares are evaluated at the initial allocation.
Main questions and answers¶
A higher \(w/r\) means labor is more expensive relative to capital; equivalently, capital is relatively cheaper. For changes in the opposite direction, reverse the local response signs.
