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Generalized separability and the gains from trade
- Fally, Thibault
- Economics letters 2019 v.178 pp. 8-12
- income, monopoly, prediction, prices, trade
- This note examines the gains from trade under a flexible demand system that encompasses three types of demand often imposed (cases of homothetic, directly-separable and indirectly-separable preferences), while retaining the property that prices can be summarized by a single aggregator. Combined with monopolistic competition and Pareto distributions of marginal costs on the supply side, this demand system yields more flexible responses of prices to income and trade, and a wider range of predictions for the gains from trade.