Normality of demand in a two-goods setting

We study the testable implications of normal demand in a two-goods setting. For a finite dataset on prices and quantities, we present the revealed preference conditions for normality of one or both goods. Our characterization provides an intuitive extension of the well-known Weak Axiom of Revealed P...

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Bibliographic Details
Published in:Journal of economic theory 2018-01, Vol.173, p.361-382
Main Authors: Cherchye, Laurens, Demuynck, Thomas, De Rock, Bram
Format: Article
Language:English
Subjects:
Normality
Revealed preference
Substitution effect
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Summary:We study the testable implications of normal demand in a two-goods setting. For a finite dataset on prices and quantities, we present the revealed preference conditions for normality of one or both goods. Our characterization provides an intuitive extension of the well-known Weak Axiom of Revealed Preference, and is easy to use in practice. We illustrate the empirical relevance of our theoretical results through an application to an experimental dataset. We also briefly discuss extensions of our conditions to a setting with more than two goods.
ISSN:0022-0531
1095-7235
DOI:10.1016/j.jet.2017.11.006