It should now become obvious the our profit and cost functions derived from production functions, and demand functions derived from utility functions are all homogeneous functions. Using these functions offers us ease of interpretation of key economic ideas. Consider the following idea related to production functions, the returns to scale. Let f(x) be the production function. Then if it were ho...

We study a class of symmetric, quasi-homothetic preferences that result in demands logarithmic in own prices when these have a negligible impact on aggregate price indices (as in monopolistic competition models). Thus marginal revenues are computationally friendly, and decreasing whenever demands are elastic. Preferences can be represented either by an additive negative exponential direct utili...

In this paper it is shown that a well known procedure (GEKS) of transitivizing a bilateral system of productivity comparisons is implicitly a way of imposing a homothetic structure onto the data. The main implication of this result is that deviations between the bilateral and the multilateral (GEKS) indexes can be interpreted as a measure of local deviation from the homothetic assumption. This ...

We study the impact of country size on wages in a two-country trade model with monopolistic competition and non-homothetic preferences. Since there is renewed interest in nonhomothetic preferences and variable markups, we revisit standard results on wages obtained using homothetic (CES) preferences. The standard results are that, under free trade, wages are equal and that, with iceberg costs, t...

This paper introduces the ‘extended linear-homothetic’ preferences to model consumer choice. Specifically, we extend Datta and Dixon’s (2000) ‘standard linear-homothetic’ preferences by adding an additional term to the unit cost function. This term captures the relative importance of price interactions within sectors on the unit cost of utility. In an economy composed of a large number of secto...