Consumers base market choices on beliefs about the properties of commodities. Invoking Lancaster?s characteristics approach, we explore the implications for consumer well-being of such beliefs being incorrect. Following an examination of the welfare cost of inaccurate beliefs, we address the...

To be of practical use comparative statics must be able to compare long-period equilibria. Such equilibria will almost never have price vectors that are proportional with respect to all prices but one - yet such price vectors are precisely those underlying the usual substitution effect analysis....