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Pastimes : Austrian Economics, a lens on everyday reality
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To: Don Lloyd who wrote (99)12/23/2001 2:15:37 AM
From: Don Lloyd   of 445
 
An even simpler example that can be fully enumerated --

An economy consists of a single individual and two economic goods, apples and oranges. All possible combinations of 0,1 or 2 apples and oranges are subjectively ranked from 1 to 9. The total costs for each combination are calculated for market prices of $1.01 for apples and $1.00 for oranges. Then the market price of oranges is reduced to $0.99 and the total costs are re-calculated. For every possible income, the changes in demand due to this price decrease in oranges are summarized.

                        Total Cost @      Total Cost @
Subj  Qty      Qty      Apples  = $1.01   Apples  = $1.01
Rank  Apples   Oranges  Oranges = $1.00   Oranges = $0.99
----  ------   -------  ---------------   --------------- 

1     2        2        $4.02             $4.00
2     2        1        $3.02             $3.01
3     1        2        $3.01             $2.99
4     2        0        $2.02             $2.02
5     1        1        $2.01             $2.00
6     0        2        $2.00             $1.98
7     1        0        $1.01             $1.01
8     0        1        $1.00             $0.99
9     0        0        $0.00             $0.00


Income Range   Demand Changes for Orange $0.99  Rank/Changes
------------   -------------------------------  ------------
$0.00-$0.98    none                             9
$0.99          Oranges 0 to 1                   9 to 8
$1.00          none                             8
$1.01-$1.97    none                             7
$1.98-$1.99    Apples 1 to 0, Oranges 0 to 2    7 to 6
$2.00          Apples 0 to 1, Oranges 2 to 1    6 to 5 *
$2.01          none                             5
$2.02-2.98     none                             4
$2.99-$3.00    Apples 2 to 1, Oranges 0 to 2    4 to 3
$3.01          Apples 1 to 2, Oranges 2 to 1    3 to 2 *
$3.02-$3.99    none                             2
$4.00-$4.01    Oranges 1 to 2                   2 to 1
$4.02 plus     none                             1

The Law of Demand states that if the price of a good is decreased, keeping everything else the same, its unit demand will increase. In this example, most often the demand does not change, and for the *-marked lines, the demand for oranges actually decreases as the market price for oranges decreases.

I suspect that the missing ingredient is a requirement that the goods involved be infinitely divisible.

Question - Can a reference be found that addresses this issue?

TIA, Don
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