Full text: Study week on the econometric approach to development planning

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citly for changes in tastes and habits. The version we have
used so far can be summarised in the following three equations:
‘IV. 20)
‘IV. 21)
and
‘IV. 22
In (IV, 20), p denotes a vector of commodity prices and #
denotes a diagonal matrix formed from this vector; e denotes
a vector of quantities of the different commodities demanded
per head of the population; p=p’e denotes total expenditure
per head; b and c¢ denote vectors of parameters restricted only
by the fact that ?b=1; and, as usual, ¢ and I denote respec-
tively the unit vector and the unit matrix. In (IV. 21) and
(IV. 22), © denotes a particular year; and the starred b's and
¢’s denote vectors of parameters restricted only by the fact that
’b* =1 and ¢'b** =o.
The second row of (IV. 20) makes possible a simple inter-
pretation of the elements of b and ¢. The elements of ¢ repre-
sent the components of the average consumer’s basic standard
of living and are bought whatever values are taken by 7
and p. When these purchases have been paid for, the amount
of money left over is 0 - p’c, and this is allocated to the different
commodities in proportion to the elements of b.
An obvious criticism of (IV. 20) taken in isolation is that
the elements of b and c are unlikely to remain constant over
time. The simplest means of meeting this criticism is set out
in (IV. 21) and (IV. 22), where the elements of b and c are ali