GROSS SUBSTITUTABILITY AND THE LAWS OF COMPARATIVE STATICS: A SIMULTANEOUS DEMAND SHIFT

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This paper extends the well-known Mosak's theorem on determinant in order to assess the comparative static price effect of a simultaneous shift in demand in the Walrasian economy in which all goods are gross substitutes. Contrary to what may be expected on the basis of the traditional result in which demand shifting from one good to another raises the latter price relative to any other price, the paper demonstrates that if the shift is from one good to two or more goods, the latter price may fall relative to the price of some other goods whose demand is not directly impacted by the shift. Therefore, the third Hicksian law of price change fails in this setting. The first two laws due to Hicks, on the other hand, are shown to hold.

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