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On Interpreting Inverse Demand Systems: A Primal Comparison of Scale Flexibilities and Income Elasticities
Author(s) -
Park Hoanjae,
Thurman Walter N.
Publication year - 1999
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1244337
Subject(s) - inverse demand function , economics , econometrics , consumption (sociology) , substitution (logic) , unitary state , bundle , scale (ratio) , homothetic transformation , microeconomics , inverse , marginal utility , mathematics , demand curve , computer science , social science , materials science , physics , geometry , quantum mechanics , sociology , law , political science , programming language , composite material
Abstract Scale flexibilities in inverse demand systems describe how marginal valuations change with expansions in the consumption bundle. Such effects clearly are related to income elasticities in direct demand systems. However, the connection is not so close as it first appears. We argue that the link between scale flexibilities and income elasticities is tight only if preferences are homothetic, a situation where neither measure is interesting, or if all elasticities of substitution are unitary. We make clear the relationship between the two measures in a coordinate system focusing on how marginal rates of substitution change with consumption scale and proportion.