Marginal Consumers and Neoclassical Demand Theory
Journal of Political Economy
1979
We extend the neoclassical theory of demand so that marginal consumers play a significant role in the determination of the elasticity of aggregate demand. Price-induced demand changes are decomposed into three effects: an aggregate substitution effect, an aggregate income effect, and an aggregate change-of-commodity effect. The final effect measures the rate at which consumers switch consumption to a similar commodity when the price of the commodity which they are currently consuming rises. Theories of consumers who pick one unit of one type of a differentiated commodity as well as the neoclassical theory obtain as special cases.
- DOI
- 10.1086/260841
- Volume
- 87 (6)
- Pages
- 1368-1376
- Language
- en
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- BibTeX
- Sources
- openalex crossref