An Armington elasticity

Elasticity (economics)

In economics, elasticity is the measurement of how changing one economic variable affects others. For example:* "If I lower the price of my product, how much more will I sell?"* "If I raise the price, how much less will I sell?"...

is an economic parameter commonly used in models of consumer theory

Consumer theory

Consumer choice is a theory of microeconomics that relates preferences for consumption goods and services to consumption expenditures and ultimately to consumer demand curves. The link between personal preferences, consumption, and the demand curve is one of the most closely studied relations in...

 and international trade

Trade

Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...

. It represents the elasticity of substitution

Elasticity of substitution

Elasticity of substitution is the elasticity of the ratio of two inputs to a production function with respect to the ratio of their marginal products . It measures the curvature of an isoquant and thus, the substitutability between inputs , i.e...

 between products of different countries, and is based on the assumption made by Paul Armington in 1969 that products traded internationally are differentiated by country of origin.

The Armington assumption has become a standard assumption of international computable general equilibrium models

Computable general equilibrium

Computable general equilibrium models are a class of economic models that use actual economic data to estimate how an economy might react to changes in policy, technology or other external factors...

. These models generate smaller and more realistic responses of trade to price changes than implied by models of homogeneous products .