# Qualitative economics

Qualitative economics refers to representation and analysis of information about the direction of change (+, -, or 0) in some economic variable(s) as related to change of some other economic variable(s). For the non-zero case, what makes the change qualitative is that its direction but not its magnitude is specified.[1]

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):

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

Qualitative hypotheses occur in earliest history of formal economics but only as to formal economic models from the late 1930s with Hicks's model of general equilibrium in a competitive economy.[2] A classic exposition of qualitative economics is Samuelson, 1947.[3] There Samuelson identifies qualitative restrictions and the hypotheses of maximization and stability of equilibrium as the three fundamental sources of meaningful theorems — hypotheses about empirical data that could conceivably be refuted by empirical data.[1]

## Notes

1. ^ a b James Quirk, 1987. "qualitative economics," The New Palgrave: A Dictionary of Economics, v. 4, p. 1.
2. ^ J. R. Hicks, 1939. Value and Capital. Oxford.
3. ^ Paul A. Samuelson, 1947. Foundations of Economic Analysis, pp. 5, 21-29.