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date: 31 March 2020

Abstract and Keywords

The scope and value of the equilibrium displacement models (EDM) methodology in consumer demand and welfare analysis is extensive. This article reviews the basic elements of the model. It discusses different applications of the models in the literature that show the utility of the approach. The major forms of the EDM and implications for consumer demand and welfare are highlighted. An important question when using the EDM to generate results for changes in prices, quantities, and surplus values is how sensitive are the results to alternative plausible values of the partial elasticities of the demand/supply equations. It then turns at last to issues related to statistical precision and approximation errors. It concludes with the discussion of modifications and extensions that are likely to be made.

Keywords: equilibrium displacement models, welfare analysis, consumer demand, elasticities, statistical precision

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