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Comparative Statics for a Consumer with Possibly Multiple Optimum Consumption Bundles

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  • Dasgupta, Indraneel

    ()
    (Indian Statistical Institute)

  • Pattanaik, Prasanta K.

    ()
    (University of California, Riverside)

Abstract

Non-positivity of the generalized substitution effect, non-positivity of the own-price substitution effect, homogeneity of degree zero in all prices and income, and the law of demand are some of the most primitive comparative static results in the standard revealed preference theory of consumers’ behaviour. These results are however derived for demand functions. The literature does not have corresponding comparative static results for the more plausible case of demand correspondences, where the consumer is permitted to have multiple chosen bundles in a given price-income situation. Using the revealed preference approach to the theory of consumers' behaviour, this note establishes such results for demand correspondences; the analysis can be readily adapted to prove corresponding results in the preference-based approach.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4818.

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Length: 11 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4818

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Keywords: demand correspondence; weak axiom of revealed preference; non-positivity of generalized substitution effect; non-positivity of own-price substitution effect; homogeneity of degree zero; law of demand;

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  1. Milgrom, Paul & Roberts, John, 1994. "Comparing Equilibria," American Economic Review, American Economic Association, vol. 84(3), pages 441-59, June.
  2. Hicks, J. R., 1986. "A Revision of Demand Theory," OUP Catalogue, Oxford University Press, number 9780198285502.
  3. Sen, Amartya K, 1971. "Choice Functions and Revealed Preference," Review of Economic Studies, Wiley Blackwell, vol. 38(115), pages 307-17, July.
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