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The study focuses on the demand-price relationship in the commodity market and the scope of the demand curve when the assumptions of ceteris paribus and rationality are relaxed. The study gives some useful insights to the policy-makers to consider while framing any policy related to aggregate demand, output, or inflation. The study is divided into five sections. The first section presents views of different schools of economists. The second section presents a review of the literature on the existing works by distinguished authors. It is covered under three themes: arguments in favor of the downward-sloping demand curve; factors other than price that influence quantity demanded; and circumstances where the demand curve is not downward-sloping. Section three covers the research methodology undertaken to analyze the emergence of the concept of demand and the factors directing it. Coupled with it, are the tentative explanations highlighting the main objectives; access to data and resources helpful for the research; the applied methods for concrete results that includes analysis of WPI showing a change in weights of commodities due to subsequent change in the price level, an analysis of a relatively more flexible market i.e. the stock market of the country (NSE) discussing causes for the change in quantity demanded of equity shares, and analysis of a survey conducted at a local area to find out how demand is aspiration-driven. The last section puts forth the analysis based on both primary and secondary data. The study concludes that while the role of price, income, and aspirations have important roles in shaping our demand schedule, the understanding that the price–demand relationship is inverse, is a simplistic one.

Veblen products are luxury goods possessed by the persons to mostly exhibit their pride in the society and their demand increases with the increase in the price. For these products, constituting a sizable share of the market, no work is found in the available literature to determine inventory management policies. The present paper, besides doing so, studies the effect on the inventory policy with changes in inventory cost parameters for some demand profiles (Leibenstein 1950) for a single retailer. Sensitivity analysis demonstrates that optimal price for Veblen products for the maximum profit occurs only on those parts of demand curve that follow the Law of Demand (Marshall 1898) and will not be affected by the changes made either to holding cost rate or ordering cost except that to the unit cost. However, optimal inventory policy is found to get affected with the change in all the three parameters.

Estimating potential effects of price reforms is a key issue for many developing countries. Demand studies increasingly use household survey data on budget shares, which vary with quantity, price, and quality. If quality response to price is ignored, estimated price elasticities of quantity demand conflate responses on quantity and quality margins. Our review finds over 80% of published studies using budget shares from household survey data have this error. We use survey data from Vietnam, with prices and qualities observed over space, to directly estimate the price elasticity of quality. This is much larger than what is derived from the income elasticity of quality, based on the Deaton (1988) separability restrictions. Across the 45 items we study, the own-price elasticity of quantity demand is overstated by a factor of four, on average, if the response of quality to price is ignored.

We extend upon Reeves (2020), who attempts to demonstrate that classical violations of the Law of Demand are in actuality the result of a violation of the ‘ceteris paribus’ assumption. For example, price changes in Giffen goods create a chain reaction from the Giffen good through a substitute and back to the Giffen good. Specifically, a price change in the Giffen good is so large wrt the consumer’s income that it creates an income effect on a substitute good, whose decrease in demand sends a shock to the Giffen good’s demand curve, shifting it out through a change in preferences and, hence, violating ceteris paribus. To understand how preferences change, consider the consumer equilibrium condition, MU(x) = λp. When price increases and income (i.e. λ) is held constant, marginal utility must increase. In order for x to increase with price, marginal utility must increase with consumption, violating the Law of Diminishing Marginal Utility. Hence, the change in price must precipitate a change in preferences because for some values of x preferences comport with the Law of Diminishing Marginal Utility whereas for other values of x preferences do not. In this paper, we respond to the non-technical aspects of Jensen and Nolan (2007) by suggesting that the price and demand changes that they are measuring are likely changes along the supply curve, not an upward sloping demand curve. One possible reason for the purported oversight is that the research explores Giffen effects in (good1 , good2 )-space, which cannot capture shifts in the demand curve, defined in (good1 , price1 )-space.

This paper considers a monopolist firm selling two collections of a single product sequentially to satisfy consumers' different social externalities. The first "capsule" collection has a unique design and is sold within a limited time frame. The second "mass" collection has the same functional features except for the appearance. Both snobs who pursue exclusivity and conformists who desire conformity are present in the market. Speculators, who have no consumption value for the product, enter the market to speculate quick money by reselling the purchased capsule collection on the resale market. All three groups of buyers are forward-looking. We examine the monopolist's pricing and production decisions at the beginning of each period and the buyers' behavior in each market. We find only snobs and speculators are willing to purchase the capsule collection. In the selling season of the mass collection, a large proportion of conformists lead to an upward-sloping demand curve, which allows the monopolist to use a "static" pricing scheme for both collections. Even though the monopolist can price the speculator out, she sets a lower price and releases more capsule products to foster the resale market. It can rivet the snobs with the capsule collection and reduces their protective effects on the law of demand for the mass collection. The resale market's presence also triggers more need for the mass collection by social influence and increases consumers' valuation of the product. Finally, we identify the conditions under which the monopolist prefers static pricing to dynamic pricing.

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.

Natural gas as a clean, low-carbon energy will play an important role in the world's low-carbon energy transformation. In this paper, research on the elasticity of natural gas demand is surveyed, and it is found that the price and income elasticities of natural gas demand in different sectors are distinctive. In particular, this paper constructs an autoregressive distribution lag model to study the elasticity of natural gas demand in various sectors of China. The results show that, except for the residents sector, the long-run price elasticity of natural gas demand in other sectors is greater than 0, which is contrary to the estimates of developed countries. The demand for natural gas is complementary to coal in industrial and power generation sectors, which is also different from developed countries. The elasticity of natural gas demand in residents sector is lack in price elasticity but abundant in income elasticity, which is similar to the developed countries. The results also shows that natural gas and oil are substitutes for each other in the transportation sector, and natural gas and coal are substitutes for each other in service sector.

In this paper, I develop a simple model of heterogeneous exporters to a single destination. This model highlights how the response of producer markups to market-level changes in that destination are intrinsically tied to the induced reallocation of export sales to that destination. I discuss how additional assumptions on the shape of demand (originally advocated by Alfred Marshall as his second law of demand) generate specific predictions for the response of those markups and induced product reallocations to increases in market size and competition in a destination: markups fall and market shares are reallocated towards better performing products. Recent evidence on French multi-product exporters strongly confirms this prediction for market share reallocations. The predictions for the markup responses are also consistent with the findings of the large empirical literature on pricing to market and incomplete pass-through.

Using household-level panel data from Tucson, Arizona, and a unique set of highly disaggregated control variables, we estimate residential demand for water via a Stone-Geary specification. The Stone-Geary functional form allows price elasticity of demand to vary with quantity consumed, price, and income and enables estimation of a threshold level of consumption below which demand is considered perfectly price inelastic. An encompassing test of consumer price response reveals evidence favoring a lagged average price specification rather than one using lagged marginal price. The estimated model also finds substantial seasonal variation in price elasticity and declining consumer price responsiveness.

This paper provides a thorough exploration of the microeconomic foundations for the multi-variate linear demand function for differentiated products, which is widely used in industrial organization. The setting is the standard representative consumer with a quasi-linear utility function. A key finding is that strict concavity of the quadratic utility function is critical for the demand system to be well defined. Otherwise, the true demand function may be quite complex: Multi-valued, non-linear and income-dependent. We uncover failures of duality relationships between substitute products and complementary products, as well as the incompatibility between high levels of complementarity and concavity. The two-good case emerges as a special case with strong but non-robust properties. A key implication is that all conclusions derived in applied economic models via the use of linear demand that does not satisfy the Law of Demand ought to be regarded with some suspicion. Postprint

The aim of this article is to examine the possibility that a market demand function (curve) might not be monotonically decreasing in its entire domain according to the consumer theory neoclassical as assumed by the law of demand (for normal goods). This may happen due to limited rationality of (some) consumers and the anchor price effect. When a price of a good decreases to some point, the amount demanded might stops increasing due to the loss of confidence effect: consumers’ unwillingness to buy a too cheap product. The existence of this effect was examined via questionnaire on a sample of 377 undergraduate university students from the Czech Republic, Ecuador and Spain. The main result of this experimental study is that the loss of confidence effect appeared at all three locations, which indicates that the law of demand may not be valid in its entire domain. Furthermore, the results of this study imply that a significant percentage of people make decisions of limited rationality even when facing a very simple task. In addition, statistically significant difference in rational behavior with respect to gender was found., Economics, Demand function, Price elasticity of demand, Irrationality, Loss of confidence and experimental study

This research investigates the relationship between price and demand of multi-attribute products positioned for different market segments. In light of the third law of demand theory and Lancaster’s and Rosen’s approach to consumer theory based on a product’s multiple characteristics (Lancaster 1966, 1971; Rosen 1974), we propose a new approach that can be used to evaluate product positioning and pricing strategies, one that integrates both economic and marketing theoretical underpinnings. Specifically, we posit that the change in relative price of a multi-attribute product, in comparison to another similar product positioned as a lower-end equivalent, will play a vital role in determining the overall demand of that product among its appropriate market segments. Based on hedonic pricing analyses using pricing data collected from Taiwan, we find that despite an increase in overall prices of high-end glasses (e.g., glasses lens positioned in the high-end category paired with glasses frames that are also positioned in the same category) relative to low-end glasses products (e.g., glasses lens positioned in the low-end category paired with glasses frames that are also positioned in the same category), effective lens and framing pairing combinations may lead to a decrease in relative prices of the high-end glasses. Consequently, the overall demand of high-end glasses among high-end consumers can increase significantly. The findings support our proposition regarding the role of relative price in relation to consumer demand for multi-attribute products. Theoretical and managerial implications are discussed.

By using panel data of 31 provinces or cities during 1998-2012 in China, this paper measured the housing market demand elasticity. Different from the previous related research, we considered the impact of housing price expectations on housing demand and distinguished between the housing consumption demand price elasticity and investment demand price elasticity. The results showed that there were differences in different regions on housing market demand elasticity such as price elasticity of housing consumption demand, price elasticity of housing investment demand and housing demand income elasticity, etc. The results could provide useful suggestions on regulating the real estate by the Chinese government.

The combination of habits and a forward outlook suggests that consumers will be sensitive not justto prices but to price dynamics. In particular, rational habits models suggest 1. that price volatilityand uncertainty will reduce demand for a habit-forming good and 2. that such volatility will dampendemand’s responsiveness to price. These two implications can be tested by augmenting a traditionalpartial-adjustment or error-correction model of demand. I apply this augmented model to data ongasoline consumption, as rational habits provide a succinct representation for the investment andbehavioral decisions that determine gasoline usage. The trade-o¤s among FE 2SLS, system GMM,and pooled mean group (PMG) estimators are considered, and my preferred estimators provideevidence of rational habits in a panel of 29 countries for the years 1990-2011. Such habits mayhelp to explain some of the cross-country and cross-time variation in ‘total’price elasticity. Thesehabits also imply that the e¤ect of price uncertainty must be taken into account when projecting theimpacts of potential policies on gasoline consumption.

This paper raises an approach to the study of consumer behaviour and markets with a particular emphasis on agricultural commodities. It develops an analysis of demand for certain products during a recent economic recession in Spain by showing the behaviour of some of them as Giffen goods in some years. According to the theory of Giffen demand, there is a direct (positive) relationship between price and the quantity demanded. Thus, the income effect outweighs the substitution effect. The main contributions of this work can be summarized in the next three points: 1) This paper studies the consumer behaviour from a Giffen perspective, beyond a traditional and rational utility approach; 2) It also suggests a framework to analyse several socioeconomic proposals and theories related to the sustainability and Human Rights-based ethic level (intrinsic to Giffen behaviour); 3) Finally, this theory is a significant contribution to design better economic policies. The analysis of Giffen phenomenon has greater explanatory power than the classical theory of Marshall. It also helps to reveal a number of important effects that are usually ignored and that could contribute to clarify some current economic phenomena. First published online:05 Feb 2014

We consider a newsvendor problem with price-dependent demand, in either additive or multiplicative format. The newsvendor has two modes of purchasing: regular ordering at the beginning of the selling season and emergency ordering (if the realized demand exceeds the initial order quantity) at the end of the selling season. By stochastic comparisons, we systematically investigate the effects of demand magnitude and demand randomness on pricing and ordering quantity decisions as well as expected profit of the newsvendor, under both usual stochastic order (first order stochastic dominance) and convex order (less variable). Our key findings include: (i) in contrary to the case where price is exogenous, a stochastically larger demand shock may even lead to a lower order quantity; (ii) a stochastically larger demand shock leads to a higher price for the additive demand case, but may lead to a lower price for the multiplicative demand case; (iii) a stochastically larger demand shock leads to a higher expected profit for both demand models; (iv) in general, a less variable demand leads to a higher expected profit for both demand models; and furthermore, a less variable demand shock has no effect on price for the additive demand model, but leads to a higher price for the multiplicative demand model. The implications of all these findings for pricing and order quantity are discussed in detail.

The purpose of this paper is to integrate various models of price formation and let the data choose themostpropermodel. Afterthedatachoosethepropermodel, onecananalyzethepriceformationprocessanddemand structures for fishery resources under the restriction of Korean fisheries regulations. This studysuggeststheintegratedmodelincludingquasi-linearpriceformationmodel, Translogpriceformationmodel,AIDS price formation model and Lewbel price formation model as level variables. It also suggests anotherintegrated model including AIDS price formation model, Rotterdam price formation model, Latinen-TheilpriceformationmodelandNevespriceformationmodelasdifferencevariables. The empirical results show that the AIDS price formation model is the most preferred in both level anddifference variables of fishery resources. The estimated parameters show that all sample species have (－)sign of price flexibilities, thus following the law of demand. The scale flexibilities of all species areestimated as (－) sign, thus being adapted to the theory. The contribution and results are summarized asfollows. First, the integrated model of fishery market demand has been developed and the data can choosethe proper model without arbitrary choice of the researcher. Second, the fishery market demand structurecould be analyzed in a way different from the ordinary demand analysis, which is based upon priceflexibility and scale flexibility. Third, the integrated model for fishery resources can be used easily whencatchingrestrictionsareimposedbypolicies.Keywords: Priceflexibility, Scaleflexibility, Integratedpriceformationmodel

Information about consumer welfare effects associated with quantity changes in demand is important for agricultural and food policy decision-makers because many policy options are directly related to controlling supplies as a means to stabilize or raise commodity prices and farmers' income. A new method is developed to measure the consumer welfare effects by using the estimates of an inverse demand system and a modified quantity-adjusted Malmquist index to represent the efficiency in quantity metric welfare. The methodology is validated by applying it to a U.S. inverse food demand system consisting of 13 food groups and a nonfood sector.

We construct a two-goods inventory-theoretic money demand model and find that the model implies, in a monetary contraction, the decline in the prices of low cash-intensity goods, durables, or luxuries outpaces that of high cash-intensity goods, nondurables, or necessities. Using U.S. data, we show that our model’s predictions are consistent with the data.

In this paper we employ a dataset of three dimensions - state, sector, and year - to estimate the short- and long-run price elasticities of state-level electricity demand in the United States. Our sample covers the period 2003-2015. We contribute to the literature by employing instrumental variable estimation approaches, using the between estimator, and pursuing panel specifications that enable us to control for multiple dimensions of fixed effects. We conclude that state-level electricity demand is very price inelastic in the short run, with a same-year elasticity of -0.1. The long-run elasticity is near -1, larger than often believed. Among the sectors, it is industry that has the largest long-run price elasticity of demand. This appears to in part be due to electricity-intensive industrial activities clustering in low-price states.

In this paper, I study optimal demand by an agent who faces a budget constraint that may not be linear. This situation arises in public good economies in which the production of the public good does not exhibit constant returns to scale and in which each agent is responsible for a fixed proportion of the cost of whatever quantity of the public good is provided. I define an agent’s demand for public good as a correspondence of the cost share so that I include economies in which production of public good exhibits constant returns to scale or the public good is perfectly substitutable by private good. I demonstrate that an agent’s demand for the public good decreases as their share of the costs increases and thus extend the law of demand beyond a setting in which agents pay personalized prices for the public good.

We analyze the Nash eqilibria of a one-stage game in which the nature of the strategic variables (prices or quantities) is determined endogenously. Duopolists producing differentiated products simultaneously choose either a quantity to produce or a price to charge. In the absence of exogenous uncertainty, there exist four types of equilibria with differing levels of output: (price, price), (quantity, quantity), (price, quantity), and (quantity, price). The multiplicity of equilibria stems from each firm's indifference between setting price and quantity, given its conjecture about its rival's strategy. But exogenous uncertainty about market demands, which makes firms uncertain about their residual demands, even in equilibrium, gives firms strict preferences between setting price and quantity. As a result, the number of equilibria is reduced. When uncertainty is exogenous, we analyze the effect of the slope of marginal costs, the nature of the demand disturbance, and the curvature of demand on firms' propensities to complete with price or quantity as the strategic variable. These three factors are likely to influence the nature and intensity of oligopolistic competition.

There are fixed costs in production. One has to assemble rents earned in production lines to cover them. There are also fixed costs in consumption. Consumers assemble surpluses to cover them. In either case, rent assemblage could either be a quantity solution, a quality solution, or a combination of both. Once a fixed cost is committed by contract, it becomes historical. Yet compared to the option of paying this fixed cost all over again, increasing those quantities or qualities, which do not further increase this fixed cost, is less costly. The Law of Demand therefore implies the quality and/or the quantity solutions. The quality solution, as provided by the Alchian-Allen Theorem, is but a special case: where an increase in quality is the only viable solution under some specific real world constraints.

This paper provides, as a counter example to the Alchian–Allen theorem, a theory of Giffen-like goods: a per unit charge to two similar goods raises the relative price of the lower quality good and yet increases the (relative) demand of the good.

Summary This paper develops an example beyond traditional microeconomic theory that provides a new explanation of Giffen behaviour. Maslow’s hierarchy of needs suggests that an individual’s preferences are not fixed but, rather, depend on purchasing power. A decrease in purchasing power with respect to low-hierarchy goods (e.g., bread) is likely to augment an individual’s preferences for such goods and to weaken preferences for high-hierarchy goods (e.g., books). By introducing a simple purchasing-power-dependent utility function that satisfies the standard assumptions, it is shown that the preference-shifting effect can provoke Giffen behaviour.

This paper refutes Rothbard’s claim that the law of diminishing marginal utility implies a non-increasing demand curve. It is argued that the law under Rothbard’s interpretation is, in fact, irrelevant for demand theory. An example of increasing demand is provided.

We study the effects of demand uncertainty on optimal decisions and the expected profit of a price-setting newsvendor who faces either additive or multiplicative stochastic demand. Our key findings are as follows. (1) A stochastically larger demand may even lead to a smaller order size and a lower profit when price is endogenous. (2) A stochastically larger demand will lead to a higher selling price in general for the additive demand case but to a lower selling price under certain mild conditions for the multiplicative demand case. Moreover, if the larger demand can be represented by a transformation of the lower one, it will lead to a higher expected profit for both demand cases. However, except for the setting with a zero shortage cost, a larger demand may not necessarily result in a higher expected profit in general. (3) Under mild conditions, a less variable demand will lead to a higher and lower selling price for the additive and multiplicative demand case, respectively, and a higher expected profit for both cases.

This paper uses scanner data from a large euro area retailer. We extend Deaton and Muellbauer’s Almost Ideal Demand System to estimate the price elasticity and curvature of demand for a wide range of products. Our results support the introduction of a kinked (concave) demand curve in general equilibrium macro models. We …nd that the price elasticity of demand is on average higher for price increases than for price decreases. However, the degree of curvature in demand is much lower than is currently imposed. Moreover, for a signi…cant fraction of products we observe a convex demand curve.

Generally, two facts occur with strategic complementarities and fixed prices: i) the equilibria are multiple, and ii) if the complementarities are strong, the law of demand is violated and the equilibrium is unstable. In this paper, we analyse the effect of price flexibility on these features as well as on market welfare properties. Assuming an exchange economy with H agents consuming two goods with one strategic complement, we show that flexibility of prices may remove both the multiplicity of the equilibria and the instability of behaviour when the externalities are strong. Moreover, we find conditions to correct instability when it is caused by perverse wealth effects. When preferences are quasilinear and identical, if the externality is beneficial, any equilibrium is Pareto optimal despite the externality. But if the externality is detrimental, corrections are required.

This study analyzes the economic determinants of domestic demand for tourism goods and services by Australians in a preference-consistent utility maximization framework. A system of demand equations based on the almost ideal demand system, which incorporates seasonality, is estimated using tourist consumption data collected through quarterly national visitor surveys. The system consists of five commodity aggregates: accommodation, food, transportation, shopping, and entertainment. The estimated model obeys the basic postulates of consumer theory, homogeneity, and symmetry. The results indicate that demands are price inelastic while income elasticities varied significantly in magnitude across the commodity aggregates. It was also observed that the demands for the five commodity aggregates are complementary, implying that tourists' overall utility depends on the joint consumption of a bundle of goods and services. The observed price inelastic demand coupled with the apparent complementarity of demands across the consumption bundle may be reflective of the possibility that latent price sensitivity is associated with tourist demand.

This study examines the economic parameters underlying the ex post demand for Australian tourism goods and services from ten source markets in Asia, Europe and North America. The results suggest that demand for the five broad commodity aggregates – accommodation, food, transport, shopping and entertainment – representing the key consumption by tourists, is price-inelastic, implying that all goods are necessities from the tourist's point of view. This result is consistent with the empirical reality that, once he or she has arrived in a destination, a tourist is bound to consume the available goods and services. A second important finding is the apparent complementarity of demands. This indicates that tourists tend to purchase a bundle of goods and services, all of which are necessary for the maximization of utility from visitation. The analysis also suggests that the underlying price elasticities exhibited through cross-price elasticity values have important implications for how price sensitivities can be better understood.

We demonstrate that a well-behaved utility function can generate Giffen behavior, where “well-behaved” means that its indifference curves are smooth, convex, and closed in a commodity space; the resulting demand function of each good is differentiable with respect to prices and income. Moreover, we show that Giffen behavior is compatible with any level of utility and an arbitrarily low share of income spent on the inferior good. This contrasts sharply with the common view that the Giffen paradox tends to occur when households’ wealth levels are low.

This article develops a structural econometric consumer demand model for goods, which have time and monetary costs, and where time spent obtaining the goods also enters into the utility function. The model is used to analyze customers' decision to buy pick-your-own versus preharvested strawberries at North Carolina pick-your-own fruit operations. The analysis distinguishes the effect of time as a resource constraint and time that provides utility. Demand for strawberries sold at the operations is price elastic, and demand for pick-your-own strawberries is less price elastic than demand for preharvested strawberries. Copyright 2008, Oxford University Press.

The veracity of the parsimonious law of demand has long been challenged by analyses of the “Veblen effect” and “prestige pricing”. Backward bending “demand” curves often attend discussions of conspicuous consumption. Probing the sociological and psychological intricacies of potential consumer interdependencies, scholars in economics and marketing have overlooked mundane product promotions. For a monopolistic firm, we formalize the relationship between the optimal price/quantity combination and the thoroughness of product promotions. Iterating toward the profit maximizing thoroughness of product promotion, gives rise to a backward bending price/quantity locus. Challenges to the law of demand that ignore product promotions are thereby undercut.

Labor demand elasticity is a measure of the sensitivity of labor demand to a change in factor prices. Hicks-Marshall laws of derived demand affect the magnitude of the elasticity of labor demand. The relationship between union strategy and labor demand elasticity was also examined as part of this discussion.

Many business practices show that the presence of a larger quantity of goods displayed may attract more customers than that with a smaller quantity of goods. This phenomenon implies that the demand may have a positive correlative with stock level. Under such a circumstance, a firm should seriously consider its pricing and ordering strategy since the demand for their goods may be affected by their selling prices and inventory level. This paper aims to develop a continuous inventory model for finding the strategy for a firm that sells a seasonal item over a finite planning time. The purpose of this firm is to maximize its expected profit by determining the optimal ordering quantity and price setting/changing strategy. Some sufficient conditions are found for finding the optimal decision rules.

New results of research in the field of the theory of demand are presented in this article. Multidimensionaladditive and nonlinear models of interrelation of demand and its factors are introduced. The demand factorsconnected with qualitative and quantitative characteristics of economic category of demand are studied. Aninterconnection and functional dependences of demand on many factors, including amount of demand fromquality and competitiveness of goods, and also from major factors of consumption are defined. The law ofdemand in space the price - quality-competitiveness is entered. Plenty of diagrams and examples are provided.

This paper provides explanations for Pareto’s apparently contradictory approach to demand theory in simultaneously insisting that measurability of utility is not needed to explain the equilibrium of consumers in competitive markets, and embracing concavifiability and thus measurability of utility when this implies restrictions on consumers’ behavior such as the law of demand. It also treats his method of calibrating an aggregate demand function by employing his law of income distribution, so as to reproduce “Gregory King’s law”. Finally, some disputed issues are dealt with concerning the nature of Pareto’s contributions to welfare economics. (JEL: B13, D11, D60).

The prospect of receiving a monetary sanction for free riding has been shown to increase contributions to public goods. We ask whether the impulse to punish is unresponsive to the cost to the punisher, or whether, like other preferences, it interacts with prices to generate a conventional demand curve. We test the price responsiveness of the demand for punishment by randomly varying the cost of reducing the earnings of other group members following laboratory voluntary contribution decisions. In our design, new groups are formed after each interaction and no subject faces any other more than once, so there is no strategic reason to punish. We nonetheless find significant levels of punishment, and we learn that both price and the extent to which the recipient's contribution is below the group mean are significant determinants of the quantity of punishment demanded. Moreover, punishment is mainly directed at free riders even when it costs nothing to the punisher. However, the propensity to punish egregious free riding varies considerably within our subject pool, from non-punishers to aggressive punishers.

Many introductory microeconomics textbook authors derive the law of demand from the assumption of diminishing marginal utility. Authors of intermediate and graduate textbooks derive demand from diminishing marginal rate of substitution and ordinal preferences. These approaches are not interchangeable; diminishing marginal utility for all goods is neither a necessary nor sufficient condition for diminishing marginal rate of substitution, and the assumption of diminishing marginal utility is inconsistent with the assumption of ordinal preferences. In this article, the author argues that demand curves should not be derived from diminishing marginal utility in introductory textbooks and suggests that introductory text authors begin their treatment of demand with diminishing marginal value.

The major distinctive feature of cultural goods is that consumers must learn how to consume them, implying that preferences should be modelled as intertemporally dependent. The canonical model in the literature uses a habit formation analogy. In this paper, we discuss in detail, though in the simplest setup, a consistent preference structure for that model. Then, we derive the implications for the dynamics of two aggregate equilibrium models, a fixed price model and a flexible price model. The learning-by-consuming behaviour is characterised by a preference structure displaying bounded adjacent complementarity in the demand for the cultural good. This implies that there will be short run complementarity between the stocks of culture and financial wealth and that the adjustment of the demand for cultural goods, or of their relative price, will have some inertia. In the exogenous price model, we find that increases in income will raise the long run demand for cultural goods while increases in the relative price will decrease it. In the endogenous price model, an increase in the supply of cultural goods will imply an initial undershooting of the price of cultural goods followed by an upward transition process. Our results seem to be consistent with the empirical results on the demand for cultural goods and seem to offer an explanation for the Baumol and Bowen paradox.

This article investigates a number of empirical regularities in the South African consumption patterns. The data support the following empirical regularities: (1) variability in consumption systematically exceeds the variability in prices; (2) law of demand; (3) income flexibility is about −0.5; (4) Engel's law; and (5) the demand hypotheses, demand homogeneity and Slutsky symmetry are acceptable. In contrast to the findings for a number of other countries, another important empirical regularity that consumer's utility function is additive is rejected for the South African consumers. Based on the implied demand elasticity estimates from the preferred model, it is found that food, housing and medical care are necessities, and clothing, furniture, transport and recreation are luxuries and demand for all the commodities are price inelastic.

Using a simple market model and Frisch's duality relation, this report develops propositions about the relationship between advertising and the market demand elasticity that may prove useful in empirical research. In particular, we find that a parallel shift in a linear demand function always alters the market demand elasticity unless supply is unitary elastic. However, the elasticity change in most cases will be negligible. We also find that curve rotation does not imply that the demand elasticity has changed, and vice versa. Lastly, if the price level affects advertising's ability to shift the market demand curve, it must also be true that advertising affects the demand elasticity. The converse is also true, i.e., if advertising affects the demand elasticity, the price level must affect advertising's ability to shift the demand curve. [JEL citations: Q130, Q170, Q180.] © 2004 Wiley Periodicals, Inc. Agribusiness 20: 181–188, 2004.

This note proposes a necessary and sufficient condition on a utility function to guarantee that it generates a demand function satisfying the law of demand. This condition can be interpreted in terms of an agent's attitude towards lotteries in commodity space. As an application, we show that when an agent has an expected utility function, her demand for securities satisfies the law of demand if her coefficient of relative risk aversion does not vary by more than 4.

This paper tests for the influence of advertising on the inter-product distribution of consumer demand for non-durable goods and services in the UK, 1963-1996. The long-run demand for seven categories of non-durable products is modelled through an advertising-augmented version of the almost ideal demand system (AIDS), which is incorporated into an error-correction model to allow for short-run dynamic adjustments to long-run equilibrium positions. Model estimates confirm that the restrictions of price homogeneity and symmetry appear to be consistent with the data, yield measures of the various types of demand elasticity that are in general plausible, confirm the strong influence of prices on the allocation of consumer expenditure, but find little evidence to support the hypothesis that advertising has the power to effect marked changes in the inter-product pattern of consumer demand in the UK. © 2002 Elsevier Science B.V. All rights reserved.

This article describes one of the fundamental laws of economics. Its description of the relation between price changes and consumer purchases of a good is presented. The economic forces which explain the consumer behavior described in the law are identified. Examples of the law are offered, as are some possible exceptions where the law appears to be violated. Keywords: demand; consumer behavior; price; marginal utility

How should a firm price a new product for which little is known about demand? We propose a pricing rule that can be used if the firm can estimate (even roughly) the maximum price it can charge and still expect to sell some units, and the firm need not know in advance the quantity it will sell. The rule is simple: Set price as though the demand curve were linear. We show that if the true demand curve is one of many commonly used demand functions, or even a more complex function, and if marginal cost is known and constant, the firm can expect its profit to be close to what it would earn if it knew the true demand curve. We derive analytical performance bounds for a variety of demand functions, calculate expected profit performance for randomly generated demand curves, and evaluate the welfare implications of our pricing rule.

Needs and wants offer a simple, consistent and intuitive foundation for demand. Indifference curves for essential goods bend sharply as use approaches zero because no amount of any other good may substitute for the essential. The sharp curvature implies inelastic demand and gross complementarity with most other goods. Indifference curves for inessentials bend less implying elastic demand and gross substitutability with most other goods. Monopoly theories that depend on elastic demand rule out essential goods. Given the importance of monopolies of life saving drugs, we believe a new monopoly theory, based on the dictator game, will prove valuable.

The law of demand states that individual demand curves are negatively sloped. To date, the Giffen Paradox represents the only analytically valid exception to the law under standard assumptions. This article shows that if consumption externalities exist, it is possible for the individual's demand curve to slope upward. In particular, the condition under which demand becomes upward-sloping can be delineated in terms of measures of elasticity of demand.

The demand for public school quality is estimated. Unlike previous studies, the price of a unit of public school quality in the demand estimation is measured by both the tax price and the implicit price calculated from a house price hedonic. Identification, endogeneity, and Tiebout bias are addressed. The tax price elasticity of the demand for public schooling is -.17; the implicit price elasticity of demand is -.11. Both estimates are more inelastic than previously reported elasticities. The income elasticity of demand is .32. The positive relationship between constant-quality house price and public school quality is confirmed.