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Small Income Effects: A Marshallian Theory of Consumer Surplus and Downward Sloping Demand

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  • Vives, Xavier

Abstract

The author formalizes the Marshallian idea t hat when the proportion of income spent on any commodity is small then the incom e effects are small. If n is the number of goods, the author shows that the orde r of magnitude of the norm of the income derivative of demand is1/an. As a coro llary for the case of a single price change, the percentage error in approximati ng the Hicksian Deadweight Loss by its Marshallian counterpart goes to zero at l east at the rate 1/an and demand is downward sloping for n sufficiently large. Copyright 1987 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 54 (1987)
Issue (Month): 1 (January)
Pages: 87-103

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Handle: RePEc:bla:restud:v:54:y:1987:i:1:p:87-103

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Cited by:
  1. Ghosal, Sayantan, 2006. "Intertemporal coordination in two-period markets," Journal of Mathematical Economics, Elsevier, vol. 43(1), pages 11-35, December.
  2. John H. Nachbar, 1998. "The last word on Giffen goods?," Economic Theory, Springer, vol. 11(2), pages 403-412.
  3. Michael Jerison & John K.-H. Quah, 2006. "Law of Demand," Discussion Papers 06-07, University at Albany, SUNY, Department of Economics.
  4. Edward E Schlee, 2004. "Expected Consumer's Surplus as an Approximate Welfare Measure," Econometric Society 2004 North American Summer Meetings 97, Econometric Society.
  5. Alex Dickson & Roger Hartley, 2007. "The strategic Marshallian cross," Keele Economics Research Papers KERP 2007/13, Centre for Economic Research, Keele University.
  6. Giuseppe Freni, 2001. "Sraffa's early contribution to competitive price theory," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 8(3), pages 363-390.
  7. Miyake, Mitsunobu, 2006. "On the applicability of Marshallian partial-equilibrium analysis," Mathematical Social Sciences, Elsevier, vol. 52(2), pages 176-196, September.
  8. Eilon Solan & Nicolas Vieille, 2003. "Equilibrium Uniqueness with Perfect Complements," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1371, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Klaus Ritzberger & Frank Milne, 2002. "Strategic pricing of equity issues," Economic Theory, Springer, vol. 20(2), pages 271-294.
  10. József Sákovics & Daniel Friedman (University of California at Santa Cruz), 2011. "The marginal utility of money: A modern Marshallian approach to consumer choice," ESE Discussion Papers 209, Edinburgh School of Economics, University of Edinburgh.

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