ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Price-Cost Relationship in Indian Industry

Indian Industry Shikha Jha The Behaviour of Industrial Prices in India by R Chatterji; Oxford University Press, Bombay, 1989; pp 224, Rs 150.
WHAT are the mechanisms for clearing different markets? Are the prices flexible enough to equate supplies and demands? Or are excess demands met by quantity adjustments? These questions are partly answered by the fact that the assumption of fix-price markets (at least) for manufactured goods is now a standard feature of most post-Keynesian macro models and is supported by a long line of empirical research starting with the Oxford studies on the price mechanism (T Wilson and P W S Andrews (eds), Oxford Studies on the Price Mechanism, Oxford University Press 1951), Information on the behaviour of industrial prices is very important for any economy- wide policy analysis, e g, in exercises such as applied general equilibrium modelling. For instance, if an assumption is made that demands and supplies determine prices, while in fact they are cost determined, then we could be over/under-estimating the inflationary impact. When prices follow a cost-based rule for certain industries it becomes necessary to specify alternative market clearing mechanisms for these industries since prices do not perform this role. Therefore, an analysis of the price/cost/ activity relation is useful especially at a disaggregated level rather than for the aggregate industrial sector as a whole.

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