Chapter 14 Market demand and excess demand functions

Abstract

Publisher Summary Market demand and market excess demand functions are defined by summing the preference-maximizing actions of consumers. These functions are central to most treatments of value theory. It discusses that the demand theory of the individual consumer has been well developed. Just as consumer demand theory is the study of properties common to demand functions that are generated by the preference-maximization of an individual consumer, market demand theory investigates properties that are shared by market demand functions. As market demand is often the observable and relevant variable for analysis, it is important to see how it is restricted by the utility hypothesis. When preferences are homothetic and the distribution of income is independent of prices, the market demand function has all the properties of a consumer demand function. The chapter discusses conditions under which market demand and market excess demand functions are consumer demand functions. It also provides an overview of Debreu's theorem, which explains that for every continuous function F that satisfies homogeneity and Walra's Law and for every compact set of positive prices K, there exists an economy with market excess demand function F on K.