Representative consumers can be very Pareto inconsistent. We describe a community, with equal income distribution, where all consumers require 50% higher aggregate income than the representative consumer requires in order to be compensated for the doubling of a price. Such large inconsistencies are ruled out if the representative consumer is homothetic, or if the consumers' income shares are fixed and all goods are normal. We show that optimality of the income distribution rule is not necessary for Pareto consistency of the representative consumer, and we give a weaker sufficient condition for Pareto consistency in communities with two goods and two consumers.
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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number
97-01.
Length: 22 pages Date of creation: 1997 Date of revision: Handle: RePEc:nya:albaec:97-01
Contact details of provider: Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A. Phone: (518) 442-4735 Fax: (518) 442-4736
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Find related papers by JEL classification: D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory D60 - Microeconomics - - Welfare Economics - - - General D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution