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General Equilibrium Theory of Value$
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Yves Balasko

Print publication date: 2011

Print ISBN-13: 9780691146799

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691146799.001.0001

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Demand Functions

Demand Functions

Chapter:
(p.19) Chapter 3 Demand Functions
Source:
General Equilibrium Theory of Value
Author(s):

Yves Balasko

Publisher:
Princeton University Press
DOI:10.23943/princeton/9780691146799.003.0003

Rational consumers are assumed to maximize their preferences subject to the constraints they perceive. With preferences that are representable by utility functions, the consumer's problem is modeled as one of maximizing a standard utility function subject to a budget constraint. This maximization problem determines the consumer's demand, a demand that is a function of the consumer's wealth and market prices. These demand functions feature several remarkable properties that make up the bulk of classical consumer theory. The most important ones are Walras law, the weak axiom of revealed preferences, and the negative definiteness of the Slutsky matrices. An important part of consumer theory is devoted to establishing these properties of demand functions when the latter come from the budget constrained maximization of standard utility function. This chapter focuses on this classical part of the theory. It also characterizes consumer's demand functions simply by their properties.

Keywords:   consumer preferences, constrained utility maximization, consumer demand, classical consumer theory, Walras law, revealed preferences, Slutsky matrices, demand functions

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