This paper presents a decomposition of the total effect of a change in a quantity constraint on the money income constant conditional demand function into an income compensated substitution effect and a pure income effect. The substitution effect is shown to be equivalent to the Hicks substitute-complementrelation while the income effect is shown to depend directly on the extent of over-or under-supply of the constrained good. The Tobin-Houthakker results on rationing constraints can be generalized in an intuitive manner to cases of non-optimal values of the constraint when the two goods involved are: (1) Hicks substitutes, the constrained good is over-supplied and the unconstrained good is a normal good; or, (2) Hicks complements, the constrained good is under-supplied and the unconstained good is a normal good. In the case of substitutes and under-supply or complements and over-supply, the sing of the Hicks substitute-Complement relation is not sufficient to determine the sign of the partial derivative of interest. Several aplications of the theoretical results are also presented.
MLA
Whitney, Gerald A., and Robert J. Mackay. “The Comparative Statics of Quantity Constraints and Conditional Demands: Theory and Applications.” Econometrica, vol. 48, .no 7, Econometric Society, 1980, pp. 1727-1744, https://www.jstor.org/stable/1911931
Chicago
Whitney, Gerald A., and Robert J. Mackay. “The Comparative Statics of Quantity Constraints and Conditional Demands: Theory and Applications.” Econometrica, 48, .no 7, (Econometric Society: 1980), 1727-1744. https://www.jstor.org/stable/1911931
APA
Whitney, G. A., & Mackay, R. J. (1980). The Comparative Statics of Quantity Constraints and Conditional Demands: Theory and Applications. Econometrica, 48(7), 1727-1744. https://www.jstor.org/stable/1911931
The Executive Committee of the Econometric Society has approved an increase in the submission fees for papers in Econometrica. Starting January 1, 2025, the fee for new submissions to Econometrica will be US$125 for regular members and US$50 for student members.
By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device. Cookies are used to optimize your experience and anonymously analyze website performance and traffic.