The starting point of this paper is the significance for economic theory of the introduction of threshold sensitive behavior which is better known in psychology as the Weber-Fechner Law. It is shown that the incorporation of this Law can give an individual multi-kinked demand curve which can be approximated as a market kinked demand curve of the Sweezy type. In terms of macroeconomic significance the Law can be connected with income policies, saving behavior and expectations in the money markets.

 

 

After assessing one version of the view that the high degree of openness of micro states to foreign trade largely precludes effective stabilization policies, this paper reviews the strikingly different conclusion yielded by Corden's policy model for a small, totally open economy. The paper then explores some modifications to Corden's framework. Although a high degree of openness may not in itself preclude effective policies, it appears that the other structural features or institutional arrangements likely to be found in at least some micro states can limit the scope or need for intervention.