Income Distribution, Price Elasticity and the 'Robinson Effect'
In The Economics of Imperfect Competition, Joan Robinson argued that an increase of the consumers' incomes should make demand less elastic-which, although reasonable about individual demand as an assumption on preferences, suggests a role for income distribution as far as market demand is concerned. We use Esteban's (International Economic Review, Vol. 27 (1986), No. 2, pp. 439-444) income share elasticity to provide sufficient conditions on income distribution that support the 'Robinson effect'-i.e. such that a negative (positive) relationship between individual income and price elasticity translates into a negative (positive) relationship between mean income and market demand elasticity. The paper also provides a framework to study the effects of distributive shocks on the price elasticity of market demand. Copyright Blackwell Publishing Ltd and The Victoria University of Manchester, 2004..
Volume (Year): 72 (2004)
Issue (Month): 5 (09)
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