Qualitative economics is the 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(\overset{+}{M})
df(M) | |
dM |
>0.
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(\overset{-}{T})
df(T) | |
dT |
<0.
GDP=f(\overset{+}{M},\overset{-}{T})
\partialf(M,T) | |
\partialM |
>0,
\partialf(M,T) | |
\partialT |
<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]