Rigid prices, flexible prices and inflation
Keywords:Price level, raw materials, manufactures, labour market, flexibility
Although the concept of a general price level is of some limited use in purely statistical and descriptive studies, it is dangerous and deceptive in the field of theoretical analyses which aim at explaining price variations. Any fruitful analysis must distinguish between various types of markets and goods since, in the short and long run, the mechanisms of price formation and variation are dependent on such. In this work, the author devotes special attention to the dichotomy of raw materials and manufactures, a regards goods. Another dichotomy is introduced with reference to the labour market. The logical basis for the double dichotomy is given by the degree of flexibility, in relation to demand, of prices and earnings.
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