Gross substitutes

The term gross substitutes is used in two slightly different meanings:

1. In microeconomics, two commodities [math]\displaystyle{ X }[/math] and [math]\displaystyle{ Y }[/math] are called gross substitutes, if [math]\displaystyle{ \frac{\Delta \text{demand}(X)}{\Delta \text{price}(Y)} \gt 0 }[/math]. I.e., an increase in the price of one commodity causes people to want strictly more of the other commodity, since the commodities can substitute each other (bus and taxi are a common example).
2. In auction theory and competitive equilibrium theory, a valuation function is said to have the gross substitutes (GS) property if for all pairs of commodities: [math]\displaystyle{ \frac{\Delta \text{demand}(X)}{\Delta \text{price}(Y)}\geq 0 }[/math]. I.e., the definition includes both substitute goods and independent goods, and only rules out complementary goods. See Gross substitutes (indivisible items).

References

0.00 (0 votes) Original source: https://en.wikipedia.org/wiki/Gross substitutes. Read more