Income Distribution and Market Demand: The Case of Heterogeneous Preferences

Abstract

In this note, we obtain sufficient conditions under which changes in income inequality lead to an increase or decrease in the market demand elasticities in the case of heterogeneous preferences among the consumers. In this paper, we applied majorization theory to study dependence of market demand elasticity on the inequality in income distribution among the consumers. In this note, we extend the results obtained to the case where consumers’ preferences are heterogeneous and the condition on equality of individual demand functions does not necessarily hold. This case is more realistic because consumers’ preferences are affected by a variety of different factors.

DOI: 10.5901/mjss.2014.v5n24p185