This preview shows page 1. Sign up to view the full content.
Unformatted text preview: the SA is “cumbersome,” and using it to determine whether a certain demand function is rationalizable may not be a trivial task. Decreasing Demand The consumer model discussed so far constitutes the standard frame-work for deriving demand. Our intuition tells us that demand for a good falls when its price increases. However, this does not follow from the standard assumptions about the rational consumer’s be-havior which we have discussed so far. The following is an example of a preference relation that induces demand that is nondecreasing in the price of one of the commodities: An Example in Which Demand for a Good May Increase with Price Consider the preferences represented by the following utility func-tion: u ( x 1 , x 2 ) = ± x 1 + x 2 if x 1 + x 2 < 1 x 1 + 4 x 2 if x 1 + x 2 ≥ 1 ....
View Full Document
This note was uploaded on 12/29/2011 for the course ECO 443 taught by Professor Aswa during the Fall '10 term at SUNY Stony Brook.
- Fall '10