The Number of Goods as a Welfare Variable: A Simplified Graphic Approach
Trade, the Internet, and product innovation have greatly enlarged the number of goods ( N ) in the consumer's choice set. The welfare effect of the growth in N has been extensively discussed in the specialized literature, but very little has filtered down to our textbook models of a competitive equilibrium. These focus on the Pareto-optimal allocation of resources for a given N , avoiding the problem of the optimum number of goods, or the welfare gains when the optimum number is increased through trade. This neglect stems from the limitations of our partial-equilibrium analytical tools—for example, indifference maps in which N is fixed. The authors fill this gap in the Hicksian ordinal revolution by developing new indifference curves that express N as a variable, thus allowing them to estimate the variety gains from trade and the real-income gains as new goods enlarge N and to use new pp curves to provide a graphic description of the optimum number of goods in a competitive economy.
Volume (Year): 39 (2008)
Issue (Month): 4 (September)
|Contact details of provider:|| Web page: http://www.tandfonline.com/VECE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/VECE20|
When requesting a correction, please mention this item's handle: RePEc:taf:jeduce:v:39:y:2008:i:4:p:374-390. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.