Generalized separability and the gains from trade

This note examines the gains from trade under a flexible demand system that encompasses three types of demand often imposed (cases of homothetic, directly-separable and indirectly-separable preferences), while retaining the property that prices can be summarized by a single aggregator. Combined with monopolistic competition and Pareto distributions of marginal costs on the supply side, this demand system yields more flexible responses of prices to income and trade, and a wider range of predictions for the gains from trade.