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

Michaël Assous, Olivier Bruno and Muriel Dal-Pont Legrand
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Muriel Dal-Pont Legrand: Clersé CNRS
Authors registered in the RePEc Author Service: Muriel DAL PONT LEGRAND

No 2015-02, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

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.

Keywords: Trade cycle; Imperfect competition; Law of Diminishing Elasticity of Demand; Roy Harrod (search for similar items in EconPapers)
JEL-codes: B22 E32 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2015-01
New Economics Papers: this item is included in nep-his, nep-hpe and nep-mac
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Citations: View citations in EconPapers (4)

Published in Cahiers d'Economie Politique, Number 67, December special issue, pp. 159-174, L'Harmattan

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