Re: [OPE] Constant returns to scale - IRS

From: Gerald Levy <>
Date: Tue Oct 07 2008 - 08:58:52 EDT

Hi Michael W:

We don't really need comparative statics for this, do we?

Mainstream theory simply _defines_ demand in such a way
that if there is an increase in income (because there is an increase
in 'ability') then demand will increase (for all 'normal goods'). The
'income effect' and the 'income elasticity of demand' are
straight-forward consequences of this definition. Hence, I would
say that it is a matter of 'true by definition'.

In solidarity, Jerry

  Comparative static modelling enables the abstract prediction of the movement of the system following a change in the data. This may help to focus interpretation of a dynamic model or theory. If income changes we expect a tendency for demand to shift, and so prices and quantities traded to shift. This is an insight into how markets function.

> Comparative static abstractions can help in the difficult task of interpreting dynamic models.

>> What would be an example of this?

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Received on Tue Oct 7 10:08:01 2008

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