Constant elasticity of substitution

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Constant elasticity of substitution (CES) is a common specification of many production functions and utility functions in neoclassical economics. CES holds that the ability to substitute one input factor with another (for example labour with capital) to maintain the same level of production stays constant over different production levels. For utility functions, CES means the consumer has constant preferences of how they would like to substitute different goods (for example labour with consumption) while keeping the same level of utility, for all levels of utility. What this means is that both producers and consumers have similar input structures and preferences no matter the level of output or utility. The vital economic element of the measure is that it provided the producer a clear picture of how to move between different modes or types of production, for example between modes of production relying on more labour. Several economists have featured in the topic and have contributed in...

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