Normality of Demand in a Two-Goods Setting
KU Leuven, Department of Economics, Discussion Paper Series, DPS16.17, September, 2016
24 Pages Posted: 21 Sep 2016
Date Written: September 2, 2016
We study the testable implications of normal demand in a two-goods setting. For a finite dataset on prices and quantities, we present the revealed preference conditions for normality of one or both goods. Our characterization provides an intuitive extension of the well-known Weak Axiom of Revealed Preference, and is easy to use in practice. We illustrate the empirical relevance of our theoretical results through an application to the experimental dataset presented in Andreoni and Miller (2002).
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