SFB 303 Discussion Paper No. A - 206

Author: Hildenbrand, Werner
Title: Facts and Ideas in Microeconomic Theory
Abstract: If one wants to use demand theory to make good guesses then the demand system must have certain general, yet fundamental properties. Without these properties one can still derive immense satisfaction from contemplating very general relationships, but if one wants to use demand theory to make a comparative static analysis then we must require certain strong properties of the demand system; one of these properties, which I consider fundamental and indispensable, I like to call the Law of Demand.The concept of "demand" as it is used in economic theory is quite abstract and in any case, very hypothetical (counterfactual). Marshall called it the demand schedule, that is to say, demand is conceived of as a function which gives for every vector of prices the vector of commodities which would be demanded at these prices by the entire population. Demand means a list of plans, not actual transactions.Consequently, the demand system is not directly observable. Still I like to use the term Law of Demand even though, in sciences, a law is a relationship between observable entities, a relationship which is time and location invariant. Definitely the demand function - as any relationship in social sciences - is not time invariant. It depends on various characteristics of the population which typically change over time. However, the Law of Demand is a qualitative property of the demand system and this qualitative property is, as I claim, in fact time invariant. The Law of Demand has an empirical content. Indeed, it is well- known that the Law does not follow alone by deduction from a plausible hypothesis on individual behavior (for example the hypothesis of preference maximization). The Law of Demand is a hybrid of theory and facts;- on the one hand, it rests on standard theoretical, yet more or less ad hoc and untested, hypotheses on individual behavior,- on the other hand, it rests on observable regularities of consumption patterns of large populations.
Creation-Date: November 1998
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