Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 396: On the Law of Demand. - A mathematically simple descriptive approach for general probability density functions
Lars-Göran Larsson ()
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Lars-Göran Larsson: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Abstract: In this paper we assume that choice of commodities at the individual (household) level is made inside the budget set and that the choice can be described by a probability density function. We prove that law of demand()0xExp is valid for one(x) or two choice variables (x, y)*. The law of demand at the market level is valid by summation. We use general probabilistic density functions p(x), p(x, y) defined over the bounded budget set to calculate E(x) and prove law of demand. The expected demand functions are homogeneous of degree zero in prices and income(,,)xyppm.The commodities x and y are normal goods**. The present approach is less complex in a mathematical sense compared to other approaches and is descriptive in its nature. Why not keep descriptions as simple as possible? Entia non sunt multiplicanda praetor necessitatem Beings ought not to be multiplied except out of necessity “Occam´s razor” Encyclopedia Brittannica
Keywords: Law of Demand and other properties of consumer demand; Microeconomics; Consumer theory; Consumer behaviour; Choice described in random terms; Expected individual and market demand
11 pages, November 30, 2009
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