On the applicability of Marshallian partial-equilibrium analysis

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4 Citations (Scopus)

Abstract

Marshallian partial-equilibrium analysis is fully justified for well-behaved (downward sloping and consistent with consumer surplus) Marshallian demand functions. However, a demand function is well-behaved only if it is the demand for a neutral good with no income effects. In a two-good setting with a normal good and a numéraire, this paper proposes a weaker concept of well-behavedness, which requires a demand function to be well-behaved only for large income levels. It also provides necessary and sufficient conditions for a utility function to generate a demand function for a normal good which is well-behaved in this sense. This result clarifies the scope and limitations of the partial-equilibrium analysis in terms of agents' characteristics within the two-good setting.

Original languageEnglish
Pages (from-to)176-196
Number of pages21
JournalMathematical social sciences
Volume52
Issue number2
DOIs
Publication statusPublished - 2006 Sep 1

Keywords

  • Consumer surplus
  • Downward sloping property
  • Marshallian demand function
  • Normal good

ASJC Scopus subject areas

  • Sociology and Political Science
  • Social Sciences(all)
  • Psychology(all)
  • Statistics, Probability and Uncertainty

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