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A Theorem of the Law of Demand

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  • Hernán Vallejo

Abstract

This article proves that at the level of an individual ceteris paribus, when the endowments of goods in general -and of time in particular-, are taken into account, a good has to comply with the Law of Demand if it is normal and its excess demand is positive, or if it is inferior and its excess demand is negative. This result holds even if either the substitution effect is zero; or the excess demand and=or the income effect are zero; but not otherwise. This article also outlines other conditions under which a good will not comply with the Law of Demand, by being Giffen or perfectly inelastic to its price. It is proved that the widespread idea that a Giffen good has to be an inferior good applies only to the cases where the excess demand of such good, is positive. It is also argued that accounting for Veblen goods may require considering other determinants of the demand function, beyond the ones considered in this article

Suggested Citation

  • Hernán Vallejo, 2021. "A Theorem of the Law of Demand," Documentos CEDE 19423, Universidad de los Andes, Facultad de Economía, CEDE.
    • Handle: RePEc:col:000089:019423
    as

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    File URL: https://repositorio.uniandes.edu.co/bitstream/handle/1992/50543/dcede2021-33.pdf
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    References listed on IDEAS

    as
    1. Grandmont, Jean-Michel, 1987. "Distributions of Preferences and the 'Law of Demand.'," Econometrica, Econometric Society, vol. 55(1), pages 155-161, January.
    2. Wagner, Alfred, 1891. "Marshall's Principles of Economics," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 5, pages 319-338.
    3. Hernán Vallejo, 2021. "Not all Giffen Goods, are Inferior Goods," Documentos CEDE 19138, Universidad de los Andes, Facultad de Economía, CEDE.
    4. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, Decembrie.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Ordinary Goods; Giffen Goods; Veblen Goods; Normal Goods; Inferior Goods; Inelastic Goods;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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