ABSTRACT
This chapter discusses the primary assumptions and the strategy of the model and reviews the model with two goods and a homogeneous utility specification. It considers the model with a nonhomogeneous function. Homogeneous utility specifications for community preferences imply that substitution effects of the traditional character are the only demand determinant of relative price behavior. Technical change, as H. J. Barnett and C. Morse have argued, has allowed for an ever-expanding supply of most natural resource commodities at constant or falling supply prices. Graphical analysis of the effects of technical change upon relative prices, while instructive, has some severe limitations. Changing the community’s utility function to a V. Mukerji constant ratio of partial elasticity of substitution function permits consideration of a more realistic demand structure. Nonhomogeneous two-good utility functions allow for both income and substitution effects as determinants of relative price behavior, in addition to the supply effects.
