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Abstract

This paper develops four propositions pertinent to an assessment of the factor market incidence of an exogenous shock to farm prices, such as is expected to follow global agricultural trade liberalization. The analysis highlights the usefulness of the Morishima elasticities of substitution in addressing this question. For example, it is shown that, in the case of two groups of fixed factors, the relative incidence of an exogenous product price shock depends entirely on the Morishima elasticities of substitution between these two input groups. These results are also extended to cover instances where there is a shock to either fixed factor availability (e.g., the release of Idled acreage) or to variable input costs (e.g., feed prices). Finally an expression for the subsequent change in real, farm household income is developed. The paper concludes with a discussion of some implications for future research.

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