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law of demand
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by
Steven
N.
Durlauf
and
Lawrence
E.
Blume
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Abstract
We formulate several laws of individual and market demand and describe their relationship to neoclassical demand theory. The laws have implications for comparative statics and stability of competitive equilibrium. We survey results that offer interpretable sufficient conditions for the laws to hold and we refer to related empirical evidence. The laws for market demand are more likely to be satisfied if commodities are more substitutable. Certain kinds of heterogeneity across individuals make the laws more likely to hold in the aggregate even if they are violated by individuals.
Keywords
asymmetric information; Bernoulli utility function; Cobb-Douglas preferences; comparative statics; compensated demand; Engel curve; Giffen effects; Giffen goods; income effect; Jacobian matrix; law of demand; Lyapunov's second theorem; marginal utility of income; metonymy; non-decreasing dispersion of excess demand; portfolio choice; risk aversion; Slutsky matrix; stability of equilibrium; substitution effect; tâtonnement; uniqueness of equilibrium
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How to cite this article
Jerison, Michael and John K.-H. Quah. "law of demand." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 23 May 2013 <http://www.dictionaryofeconomics.com/article?id=pde2008_L000215> doi:10.1057/9780230226203.0939
