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Pigou’s Law and the proportionality of income and price elasticities of demand

Arthur Snow and Ronald Warren ()

Economics Letters, 2015, vol. 132, issue C, 136-138

Abstract: Pigou’s Law states that, for preferences characterized by additively separable utility and constant marginal utility of income, and goods with a negligible budget share, there is a proportional relationship between the income and uncompensated own-price elasticities of demand, the factor of proportionality being the income elasticity of the marginal utility of income. We derive a general version of Pigou’s Law that relaxes these assumptions. We then show that several published variants of Pigou’s Law are special cases of the general version for the additional restrictions on preferences and budget shares they impose.

Keywords: Pigou’s Law; Elasticities of demand; Consumer demand (search for similar items in EconPapers)
JEL-codes: D1 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:eee:ecolet:v:132:y:2015:i:c:p:136-138