Technical substitution of production factors through shadow pricing of factors |
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| Authors: | Abdul Qayum |
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| Institution: | ABDUL QAYUM professor of Economics and Systems Science at Portland State University, USA. |
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| Abstract: | In underdeveloped countries, the market prices of factors do not reflect their economic opportunity cost, because of various market imperfections, state regulations, and population growth. Therefore, it is necessary that shadow prices of factors, instead of market prices of factors, should be used in the evaluation and selection of projects. Three alternative approaches to derive shadow prices have been outlined along with their shortcomings. |
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