Marshallian demand function
Encyclopedia
In microeconomics
, a consumer's Marshallian demand function (named after Alfred Marshall
) specifies what the consumer would buy in each price and wealth situation, assuming it perfectly solves the utility maximization problem
. Marshallian demand is sometimes called Walrasian demand (named after Léon Walras
) or uncompensated demand function instead, because the original Marshallian analysis ignored wealth effect
s.
According to the utility maximization problem, there are L commodities with prices p. The consumer has wealth w, and hence a set of affordable packages
,
where
is the inner product of the prices and quantity of goods. The consumer has a utility function
.
The consumer's Marshallian demand correspondence is defined to be
.
If there is a unique utility maximizing package for each
price and wealth situation, then it is called the Marshallian demand function. See the utility maximization problem
entry for a discussion of this definition.
Microeconomics
Microeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...
, a consumer's Marshallian demand function (named after Alfred Marshall
Alfred Marshall
Alfred Marshall was an Englishman and one of the most influential economists of his time. His book, Principles of Economics , was the dominant economic textbook in England for many years...
) specifies what the consumer would buy in each price and wealth situation, assuming it perfectly solves the utility maximization problem
Utility maximization problem
In microeconomics, the utility maximization problem is the problem consumers face: "how should I spend my money in order to maximize my utility?" It is a type of optimal decision problem.-Basic setup:...
. Marshallian demand is sometimes called Walrasian demand (named after Léon Walras
Léon Walras
Marie-Esprit-Léon Walras was a French mathematical economist associated with the creation of the general equilibrium theory.-Life and career:...
) or uncompensated demand function instead, because the original Marshallian analysis ignored wealth effect
Wealth effect
The wealth effect is an economic term, referring to an increase in spending that accompanies an increase in perceived wealth.-Effect on individuals:...
s.
According to the utility maximization problem, there are L commodities with prices p. The consumer has wealth w, and hence a set of affordable packages
,where
is the inner product of the prices and quantity of goods. The consumer has a utility function.The consumer's Marshallian demand correspondence is defined to be
.If there is a unique utility maximizing package for each
price and wealth situation, then it is called the Marshallian demand function. See the utility maximization problem
Utility maximization problem
In microeconomics, the utility maximization problem is the problem consumers face: "how should I spend my money in order to maximize my utility?" It is a type of optimal decision problem.-Basic setup:...
entry for a discussion of this definition.
Example
If there are two commodities, then a consumer that always chooses to spend half of its income on each commodity would have the Marshallian demand function