Home | Databases | WorldLII | Search | Feedback Edited Legal Collections Data

"Cost Curves and Investment" [2004] ELECD 198; in Minsky, P. Hyman; Papadimitriou, B. Dimitri (eds), "Induced Investment and Business Cycles" (Edward Elgar Publishing, 2004)

Book Title: Induced Investment and Business Cycles

Editor(s): Minsky, P. Hyman; Papadimitriou, B. Dimitri

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843762164

Section: Chapter 5

Section Title: Cost Curves and Investment

Number of pages: 25

Extract:

5. Cost curves and investment
The effect of a change in National Income, operating through a change in
household income, is to shift some demand curves for consumption goods.
The amount of induced investment (positive or negative) by business firms
depends upon their reaction to the resulting shifts in the demand curves
confronting them. This is true not only of the demand for investment goods
by consumption goods producers but it is also true of the demand for
investment goods by investment goods producers: realized induced invest-
ment depends upon the reaction of business firms to the shifts in their
demand curves which are associated with a change of income.
It is necessary to distinguish between autonomous and induced invest-
ment. Autonomous investment is due to the introduction of new pro-
duction functions and to changes in the supply conditions of factors of
production. In our approach the influences upon a business firm are
separated into demand conditions and supply conditions. Therefore, auto-
nomous investment initially is due to changes in supply conditions, whereas
induced investment initially is due to changes in demand conditions. In our
work we are interested in induced investment, even though the `autonomy'
of autonomous investment may be questioned.
The immediate incentive to invest by a firm may be due to a change in
the relative prices of factors of production. Such investment is induced if
the change in the relative prices is due to the repercussions of a change in
income whereas such investment is ...