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The Number of Goods as a Welfare Variable: A Simplified Graphic Approach


  • Morton Paglin
  • Mark Paglin


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.

Suggested Citation

  • Morton Paglin & Mark Paglin, 2008. "The Number of Goods as a Welfare Variable: A Simplified Graphic Approach," The Journal of Economic Education, Taylor & Francis Journals, vol. 39(4), pages 374-390, September.
  • Handle: RePEc:taf:jeduce:v:39:y:2008:i:4:p:374-390
    DOI: 10.3200/JECE.39.4.374-390

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