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Propensity to search and income elasticity of demand: does the equilibrium really exist?

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  • Malakhov, Sergey

Abstract

The analysis of the propensity to search under price dispersion discovers the identity of the optimal consumption-leisure choices in the model of optimal search and in the classical model of individual labor supply when the propensity to search is unimportant. However, the vigorous propensity to search, that occurs when consumers visit high-price stores, challenges the classical view on the optimal labor-leisure trade-off. The vigorous propensity to search creates the positive consumption-leisure relationship. The willingness to substitute labor by search under price dispersion also changes the understanding of the income elasticity of demand. The modest propensity to search creates normal but inelastic demand. The elastic demand becomes the result of the vigorous propensity to search where consumption-leisure trade-off is positive and either consumption or leisure becomes “bad”. This theoretical assumption proves the occurrence of Veblen effect as well as money illusion and creates doubts in the existence of the general equilibrium.

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  • Malakhov, Sergey, 2018. "Propensity to search and income elasticity of demand: does the equilibrium really exist?," MPRA Paper 86250, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:86250
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    References listed on IDEAS

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    1. Kenneth J. Arrow & Partha S. Dasgupta, 2009. "Conspicuous Consumption, Inconspicuous Leisure," Economic Journal, Royal Economic Society, vol. 119(541), pages 497-516, November.
    2. Botti, Laurent & Peypoch, Nicolas & Randriamboarison, Rado & Solonandrasana, Bernardin, 2006. "An Econometric Model of Tourism Demand in France," MPRA Paper 25390, University Library of Munich, Germany, revised 30 Dec 2006.
    3. Sergey MALAKHOV, 2015. "Propensity to Search: Common, Leisure, and Labor Models of Consumer Behavior," Expert Journal of Economics, Sprint Investify, vol. 3(1), pages 63-76.
    4. Chung-cheng Lin, 2003. "A backward-bending labor supply curve without an income effect," Oxford Economic Papers, Oxford University Press, vol. 55(2), pages 336-343, April.
    5. Sergey MALAKHOV, 2014. "Willingness to Overpay for Insurance and for Consumer Credit: Search and Risk Behavior Under Price Dispersion," Expert Journal of Economics, Sprint Investify, vol. 2(3), pages 109-119.
    6. Mark Aguiar & Erik Hurst, 2007. "Measuring Trends in Leisure: The Allocation of Time Over Five Decades," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(3), pages 969-1006.
    7. Joan Costa‐Font & Marin Gemmill & Gloria Rubert, 2011. "Biases in the healthcare luxury good hypothesis?: a meta‐regression analysis," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 174(1), pages 95-107, January.
    8. Sergey Malakhov, 2014. "Satisficing Decision Procedure and Optimal Consumption-Leisure Choice," International Journal of Social Science Research, Macrothink Institute, vol. 2(2), pages 138-151, September.
    9. Stigler, George J., 2011. "Economics of Information," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 35-49.
    10. Chiaki Hara, 2005. "Existence of Equilibria in Economies with Bads," Econometrica, Econometric Society, vol. 73(2), pages 647-658, March.
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    Cited by:

    1. Malakhov, Sergey, 2018. "Limits to the «theorem of lemons»: demand for good cars under equilibrium price dispersion," MPRA Paper 88594, University Library of Munich, Germany.
    2. Malakhov, Sergey, 2019. "Willingness to take care of good cars: from the theorem of lemons to the Coase theorem," MPRA Paper 98380, University Library of Munich, Germany.
    3. Malakhov, Sergey, 2021. "Work of invisible hand: the gravitation between sellers and buyers on the consumption-leisure production possibility frontier," MPRA Paper 106750, University Library of Munich, Germany.
    4. Malakhov, Sergey, 2019. "Consumption-leisure complementarity versus income elasticity of demand under equilibrium price dispersion," MPRA Paper 92971, University Library of Munich, Germany.

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    More about this item

    Keywords

    propensity to search; income elasticity of demand; consumption-leisure choice; Veblen effect; money illusion;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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