SFB 303 Discussion Paper No. A - 123

Author: Hildenbrand, Werner
Title: The Weak Axiom of Revealed Preference for Market Demand is strong
Abstract: The weak axiom of revealed preference for the market demand function is the most general condition on the consumption sector of aprivate ownership economy that by itself guarantees uniqueness of equilibria for a regular economy if no restriction on the production sector of the economy is imposed. Hence, as long as one does not restrict the form of the total production set, the crucial question for uniqueness of equilibria is whether one cane expect the axiom to hold for a reasonably general class of consumption sectors.
We shall analyze this question here for a class of consumption sectors which have a particular structure. There are some commodities (called pure factors of production) which are not consumed by any individual household but they are used as inputs in production. These pure factors of production are owned by the households and they derive income from it. Many general equilibrium models in the literature are of this type. For example, Cassel (1918), Wald (1936), McKenzie (1954) or most of the "applied general equilibrium models" see e.g. Scarf and Shoven (1984).
Under quite weak assumptions on the individual demand functions, we shall show that the market demand function of such consumption sectors "typically" does not satisfy the weak axiom of revealed preference.
Creation-Date: July 1987
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