What Is the Role of Elasticity in Microeconomics?

Elasticity Approach, also known as Elasticity Analysis, was developed by Joan Robinson, an economist at the University of Cambridge in the UK, on the basis of Marshall's microeconomics and partial equilibrium analysis methods.

Elastic Analysis Method for Balance of Payments Adjustment

Right!

Elasticity Approach is also called elastic analysis method.

Elasticity Approach is also called elastic analysis method.

Price changes affect

1. Other conditions remain the same, only consider

Marshall-Lerner condition

Elastic Analysis Method for Balance of Payments Adjustment

Table 1-2 Depreciation pairs

Contribution of the Elastic Analysis Method for the Adjustment of the Balance of Payments

The important contribution of this theory is that its analysis corrects the one-sided view that currency depreciation must improve the role and effect of trade balance, but correctly points out that depreciation can improve trade balance only under certain export supply and demand elasticity conditions. Role and effect.

Limitations of the Elastic Analysis Method for the Adjustment of the Balance of Payments

1. The theory limits the balance of payments to trade balances only, without considering the import and export of labor services and international capital movements.

2. The theory is based on the condition that it is less than "full employment", so it assumes that the supply is completely elastic. Not applicable to the recovery and upswing of the business cycle.

3. It is a partial equilibrium analysis, which only considers the impact of exchange rate changes on import and export trade, and ignores the impact of other important economic variables on the balance of payments and other interrelationships.

4. It is a static analysis that ignores the "lag" of exchange rate changes. The effect of exchange rate changes on trade balances is a "J-shaped curve." We have not seen that depreciation improves trade balance not through changes in relative prices, but through changes in the money supply and absolute price levels.

5. The coefficient of elasticity is the most important parameter in this theory, but how to determine it is an extremely complicated and difficult problem.