Factor price
Encyclopedia
In economic theory, the price of a finished item affects the factors of production
, the various costs and incentives of producing it, so as to 'attract' it toward a theoretical Factor price. In other words it is the concept that the price of an item tends to approach the cost of producing it.
There has been much debate as to what determines factor prices. Classical
and Marxist economists argued that the factor prices decided the value of a product and so value was intrinsic
within the product. For this reason, the term 'natural price' is often instead used.
Marginalist economists argue that the factor price is a function of the demand for the final product, and so they are imputed
from the finished product. The theory of imputation was first expounded by the Austrian
economist Friedrich von Wieser
.
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...
, the various costs and incentives of producing it, so as to 'attract' it toward a theoretical Factor price. In other words it is the concept that the price of an item tends to approach the cost of producing it.
There has been much debate as to what determines factor prices. Classical
Classical economics
Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill....
and Marxist economists argued that the factor prices decided the value of a product and so value was intrinsic
Intrinsic value
Intrinsic value can refer to:*Intrinsic value , of an option or stock.*Intrinsic value , of a coin.*Intrinsic value , in ethics and philosophy.*Intrinsic value , in philosophy....
within the product. For this reason, the term 'natural price' is often instead used.
Marginalist economists argue that the factor price is a function of the demand for the final product, and so they are imputed
Imputation (economics)
In economics, the theory of imputation, first expounded by Carl Menger, maintains that factor prices are determined by output prices.This is the opposite of the labor theory of value maintained by classical economists such as Adam Smith and David Ricardo....
from the finished product. The theory of imputation was first expounded by the Austrian
Austrian School
The Austrian School of economics is a heterodox school of economic thought. It advocates methodological individualism in interpreting economic developments , the theory that money is non-neutral, the theory that the capital structure of economies consists of heterogeneous goods that have...
economist Friedrich von Wieser
Friedrich von Wieser
Friedrich Freiherr von Wieser was an early member of the Austrian School of economics. Born in Vienna, the son of Privy Councillor Leopold von Wieser, a high official in the war ministry he first trained in sociology and law...
.