Qualitative economics.html

Qualitative economics refers to representation and analysis of information about the direction of change (+ or -) in some economic variable(s) as related to change of some other economic variable(s) (James Quirk, 1987, p. 1). What makes the change of a variable qualitative is that the direction (signed by a + or -) but not the magnitude of the change is specified.

Typical exercises of qualitative economics include comparative-static changes studied in microeconomics or macroeconomics and comparative equilibrium-growth states in a macroeconomic growth model. A simple example illustrating qualitative change is from macroeconomics. Let:

GDP = nominal gross domestic product, a measure of national income

M = money supply

T = total taxes.

Monetary theory hypothesizes a positive relationship between GDP the dependent variable and M the independent variable. Equivalent ways to represent such a qualitative relationship between them are as a signed functional relationship and as a signed derivative:

$+ \,\!$

$GDP = f(M) \,\!$ $or \,\!$ $\frac{ df(M) }{ dM} > 0.$

where the '+' indexes a positive relationship of GDP to M, that is, as M increases, GDP increases, and vice versa.

Another model of GDP hypothesizes that GDP has a negative relationship to T. This can be represented similarly to the above, with a theoretically appropriate sign change as indicated:

$- \,\!$

$GDP = f(T) \,\!$ $or \,\!$ $\frac{ df(T)}{ dT} < 0.$

That is, as T increases, GDP decreases, and vice versa. A combined model uses both M and T as independent variables. The hypothesized relationships can be equivalently represented as signed functional relationships and signed partial derivatives (suitable for more than one independent variable):

$+ \,\!$ $- \,\!$

$GDP = f(M, T) \,\!$ $or \,\!$ $\frac{\partial f(M, T)}{\partial M} > 0,$ $\frac{\partial f(M, T)}{\partial T} < 0.$

A classic exposition of qualitative economics is Paul A. Samuelson (1947).

References

James Quirk, (1987). “Qualitative economics," The New Palgrave: A Dictionary of Economics, v. 4, pp. 1-3
Paul A. Samuelson (1947). Foundations of Economic Analysis, Harvard University Press. ISBN 0-674-31301-1

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