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On the Law of Demand. - A mathematically simple descriptive approach for general probability density functions

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  • Larsson, Lars-Göran

    ()
    (Department of Economics, School of Business, Economics and Law, Göteborg University)

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    Abstract

    In this paper we assume that choice of commodities at the individual (household) level is made inside the budget set and that the choice can be described by a probability density function. We prove that law of demand()0xExpis valid for one(x) or two choice variables (x, y)*. The law of demand at the market level is valid by summation. We use general probabilistic density functions p(x), p(x, y) defined over the bounded budget set to calculate E(x) and prove law of demand. The expected demand functions are homogeneous of degree zero in prices and income(,,)xyppm.The commodities x and y are normal goods**. The present approach is less complex in a mathematical sense compared to other approaches and is descriptive in its nature. Why not keep descriptions as simple as possible? Entia non sunt multiplicanda praetor necessitatem Beings ought not to be multiplied except out of necessity “Occam´s razor” Encyclopedia Brittannica

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    File URL: http://hdl.handle.net/2077/21488
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    Bibliographic Info

    Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 396.

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    Length: 11 pages
    Date of creation: 30 Nov 2009
    Date of revision:
    Handle: RePEc:hhs:gunwpe:0396

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    Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
    Phone: 031-773 10 00
    Web page: http://www.handels.gu.se/econ/
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    Related research

    Keywords: Law of Demand and other properties of consumer demand; Microeconomics; Consumer theory; Consumer behaviour; Choice described in random terms; Expected individual and market demand;

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    1. Hardle, Wolfgang & Hildenbrand, Werner & Jerison, Michael, 1991. "Empirical Evidence on the Law of Demand," Econometrica, Econometric Society, Econometric Society, vol. 59(6), pages 1525-49, November.
    2. John K.-H. Quah, 2000. "The Monotonicity of Individual and Market Demand," Econometrica, Econometric Society, Econometric Society, vol. 68(4), pages 911-930, July.
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