The Uncompensated Law of Demand in an exchange economy

Edwin Franks*, William D.A. Bryant

*Corresponding author for this work

Research output: Contribution to journalArticle

Abstract

Recently in these Letters, Franks and Bryant (2017) provided new necessary and sufficient conditions for the Uncompensated Law of Demand (ULD) when consumer income is exogenous and not price dependent. We now consider price dependent incomes, and provide new necessary and sufficient conditions for the ULD to hold for a consumer in an exchange economy. Like Franks and Bryant (2017), these conditions avoid unobservables such as preferences or utility and hence are ’Revealed Preference’ in character. Our Theorem 1 establishes that consumers in an exchange economy satisfy the ULD if and only if they consume exactly and only their initial endowment. Interestingly, unless a consumer lives in a state of personal autarky, there will always be a price variation for which their behaviour violates the ULD.

Original languageEnglish
Pages (from-to)127-131
Number of pages5
JournalEconomics Letters
Volume168
DOIs
Publication statusPublished - 1 Jul 2018

Keywords

  • Exchange economy
  • Giffen commodity vector
  • Giffen price vector
  • Inverse demand
  • Slutsky condition
  • Uncompensated Law of Demand

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