Not so demanding: preference structure, firm behavior, and welfare

Working paper

We introduce two new tools for relating preferences and demand to firm behavior and economic performance. The "Demand Manifold" links the elasticity and convexity of an arbitrary demand function; the "Utility Manifold" links the elasticity and concavity of an arbitrary utility function. Along the way we present some new families of demand functions; show how the structure of demand and preferences determine the responses of monopoly firms and monopolistically competitive industries to exogenous shocks; characterize the efficiency of a monopolistically competitive equilibrium; and present a quantitative framework for predicting the welfare effects of exogenous shocks.

Authors: Neary, P; Mrazova, M

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2013-12-31
• Paper number: 691
• Keywords: super- and sub-convexity; quantifying gains from trade; supermodularity; heterogeneous firms