A theorem of the Law of Demand

This article proves that at the level of an individual ceteris paribus, when the endowments of goods in general -and of time in particular-, are taken into account, a good complies with the Law of Demand if and only if: a) It is normal (inferior) and its excess demand is positive (negative); or b) The substitution effect is negative and the excess demand and/or the income effect are zero; or c) It is normal (inferior), its excess demand is negative (positive), and the substitution effect is greater than the net income effect, in absolute terms. This article also outlines other conditions under which a good will not comply with the Law of Demand, by being perfectly inelastic to its price or by being Giffen. It is proved that the widespread idea that a Giffen good has to be an inferior good, applies only to the cases where the excess demand of such good, is positive.

• Autores: Vallejo, Hernán
• Tipo de recurso: Work document
• Fecha de publicación: 2021
• Institución: Universidad de los Andes
• Repositorio: Séneca: repositorio Uniandes
• Idioma: eng
• OAI Identifier: oai:repositorio.uniandes.edu.co:1992/50543
• Acceso en línea: http://hdl.handle.net/1992/50543
• Palabra clave: Ordinary Goods; Giffen Goods; Veblen Goods; Normal Goods; Inferior Goods; Inelastic Goods; D01, D11, J22
• Rights: openAccess
• License: http://creativecommons.org/licenses/by-nc-nd/4.0/