I. The general framework, 220. — II. Productivity changes and nonlabor income, 225. — III. Overtime, 227. — IV. The effect of training, 228. — V. Minimum wage and wage ceiling, 230. — VI. Some aspects of market demand and supply, 233. — VII. Concluding remarks, 234. — Appendix, 234.

A Laspeyres index of total input in the electric power industry was constructed. The nature of the bias imbedded in such an index, and its relation to the Paasche index and its bias, are investigated. Means to evaluate the actual size of the bias and means to reduce it are devised.

The article shows that innovations are induced, since they become more profitable with the expansion of output. The amount of resources devoted to innovating activity, however, is in general not the optimal one because of the pressure of two opposing forces. On the one hand, competition between potential innovators tends to make this amount too large, on the other, the inability of innovators to capture all the benefits tends to make the amount too small. When all benefits are captured by the innovator either there is no economic growth due to innovations or else innovators are the sole beneficiaries from that growth. When benefits are diffused the innovation will always lead to economic growth, but only by sheer coincidence will it lead to maximum growth, which may be missed because the innovation is introduced either too early or too late. The rate of growth is always positive if the innovation is introduced too late. It may fall to zero with too-early introduction or even become negative if innovational activity is subsidized.

Because commodities as transacted are complex, tax statutes could not cover all margins subject to optimization. A tax will induce, then, substitution within the commodity away from the taxed attributes and into the others. The results of a test on cigarettes are consistent with our prediction that the effects of unit and ad valorem taxes will differ both from each other and from those predicted by the conventional model. It is shown that, although the market will adjust in numerous changeable characteristics, the adjustment is constrained by the condition that the sum of the dollar value of the inefficiencies and of tax paid is minimized.

Because commodities as transacted are complex, tax statutes could not cover all margins subject to optimization. A tax will induce, then, substitution within the commodity away from the taxed attributes and into the others. The results of a test on cigarettes are consistent with our prediction that the effects of unit and ad valorem taxes will differ both from each other and from those predicted by the conventional model. It is shown that, although the market will adjust in numerous changeable characteristics, the adjustment is constrained by the condition that the sum of the dollar value of the inefficiencies and of tax paid is minimized.

There are many economic activities where the cost function can be approximated by a fixed initial cost and a constant (sometimes zero) marginal cost as with book publishing, public utilities, and innovations. In the absence of technical advance, an economy that grows in scale could nevertheless exhibit growth in per capita income by taking advantage of the economies of scale afforded. To the extent, however, that these production processes are in the public domain, overinvestment, manifested either in premature entry or in duplication of resources, will occur, and the growth potential, to a large extent, will be lost.