As before, the analysis begins with a closed and growing economy. The relative
agricultural price is determined merely by the changes in domestic factors. All main
features of economic growth discussed in the previous chapter exist.
Furthermore, the factor markets are competitive. Returns to factors (factor prices)
are equal to the value of marginal products of factor. Specifically, factor prices are
determined by the output prices and the marginal productivities of factor are thereby
determined by the endowments of factor.
Since prices are endogenous variable affected by changes in supply and demand in a
closed economy, the total supply-side effects of changes in factor endowments on the
relative return to factors are not only directly through the factor markets but also
indirectly through the changes in commodity prices