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A Theorem of the Law of Demand

Hernán Vallejo

Documentos CEDE from Universidad de los Andes - CEDE

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

Keywords: Ordinary Goods; Giffen Goods; Veblen Goods; Normal Goods; Inferior Goods; Inelastic Goods (search for similar items in EconPapers)
JEL-codes: D01 D11 J22 (search for similar items in EconPapers)
Pages: 19
Date: 2021-07-21
New Economics Papers: this item is included in nep-cwa and nep-isf
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