The Strong Law of Demand
AbstractWe show that a demand function is derived from maximizing a quasilinear utility function subject to a budget constraint if and only if the demand function is cyclically monotone. On finite data sets consisting of pairs of market prices and consumption vectors, this result is equivalent to a solution of the Afriat inequalities where all the marginal utilities of income are equal. We explore the implications of these results for maximization of a random quasilinear utility function subject to a budget constraint and for representative agent general equilibrium models. The duality theory for cyclically monotone demand is developed using the Legendre-Fenchel transform. In this setting, a consumer's surplus is measured by the conjugate of her utility function.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm336.
Date of creation: 28 Jul 2004
Date of revision:
Permanent Income Hypothesis; Afriat's Theorem; Law of Demand; Consumer's Surplus; Testable Restrictions;
Other versions of this item:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Donald J. Brown & Ravi Kannan, 2003. "Indeterminacy, Nonparametric Calibration and Counterfactual Equilibria," Cowles Foundation Discussion Papers 1426, Cowles Foundation for Research in Economics, Yale University.
- John Geanakoplos, 2013. "Afriat from MaxMin," Cowles Foundation Discussion Papers 1904, Cowles Foundation for Research in Economics, Yale University.
- Ruediger Bachmann, 2006. "Testable Implications of Pareto Efficiency and Individualrationality," Economic Theory, Springer, vol. 29(3), pages 489-504, November.
- Donald J. Brown & Caterina Calsamiglia, 2003. "Rationalizing and Curve-Fitting Demand Data with Quasilinear Utilities," Cowles Foundation Discussion Papers 1399R, Cowles Foundation for Research in Economics, Yale University, revised Jul 2004.
- John Geanakoplos, 2013. "Afriat from MaxMin," Levine's Working Paper Archive 786969000000000746, David K. Levine.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.