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The Law of Diminishing Elasticity of Demand in Harrod’s Trade Cycle (1936)

Author

Listed:
  • Michaël Assous

    (PHARE
    University of Paris 1)

  • Olivier Bruno

    (GREDEG CNRS
    University of Nice Sophia Antipolis, France
    SKEMA Business School
    OFCE DRIC)

  • Muriel Dal-Pont Legrand

    (Clersé CNRS
    University of Lille 1)

Abstract

In The Trade Cycle, Roy Harrod [1936a] propounded the Law of Diminishing Elasticity of Demand. The present paper tries to clarify the precise role Harrod assigned to this law in order to understand his trade cycle theory. We discuss the micro and macro foundations of the Law of Diminishing Elasticity of Demand and how, according to Harrod, it explains one of the main mechanisms that stabilize the economy during the trade cycle. In addition, we show how the Law of Diminishing Elasticity of Demand allowed Harrod to micro-found a non-linear saving function that can give rise to an endogenous countercyclical value of the multiplier. The paper concludes by reviewing the main arguments related to the Law of Diminishing Elasticity of Demand proposed in the late 1930s.

Suggested Citation

  • Michaël Assous & Olivier Bruno & Muriel Dal-Pont Legrand, 2015. "The Law of Diminishing Elasticity of Demand in Harrod’s Trade Cycle (1936)," GREDEG Working Papers 2015-02, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  • Handle: RePEc:gre:wpaper:2015-02
    as

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    File URL: http://www.gredeg.cnrs.fr/working-papers/GREDEG-WP-2015-02.pdf
    File Function: First version, 2015
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    References listed on IDEAS

    as
    1. Olivier Bruno & Muriel Dal-Pont Legrand, 2014. "The instability principle revisited: an essay in Harrodian dynamics," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 21(3), pages 467-484, June.
    2. Laetitia Chaix & Dominique Torre, 2015. "The Dual Role of Mobile Payment in Developing Countries," GREDEG Working Papers 2015-01, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    3. R. F. Harrod, 1934. "Doctrines of Imperfect Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 48(3), pages 442-470.
    4. Daniele Besomi, 2004. "Harrod's Dynamics in the Making," Chapters,in: Political Events and Economic Ideas, chapter 19 Edward Elgar Publishing.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Michaël Assous & Muriel Dal Pont Legrand & Harald Hagemann, 2016. "Business cycles and growth," Chapters,in: Handbook on the History of Economic Analysis Volume III, chapter 4, pages 27-39 Edward Elgar Publishing.
    2. Gheorghe Savoiu & Emilia Gogu & Alexandru Ionescu, 2016. "Model Estimates Of Gross Domestic Product In Relation to Export And Import Of Fuels, Focused on the Elasticity and Determination Of Directly and Indirectly Associated Rates," Romanian Statistical Review, Romanian Statistical Review, vol. 64(1), pages 21-40, March.

    More about this item

    Keywords

    Trade cycle; Imperfect competition; Law of Diminishing Elasticity of Demand; Roy Harrod;

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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