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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 framework 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 behavior 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 function: 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 ....
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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
 aswa

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