Lhe law of diminishing elasticity of demand in Harrod’s trade cycle

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

Cahiers d’économie politique / Papers in Political Economy, 2014, issue 67, 159-174

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 his The Trade Cycle Theory. We discuss the micro and macro foundations of the Law of Diminishing Elasticity of Demand and argue that it explains one of the main mechanisms that stabilize the economy during the trade cycle. In addition, we highlight how the Law of Diminishing Elasticity of Demand allowed Harrod to micro-found a nonlinear 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; Harrod. (search for similar items in EconPapers)
JEL-codes: B22 E32 (search for similar items in EconPapers)
Date: 2014
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