Probabilistic Economic Theory

Second, our main objection against the traditional demand function is that when real buyers enter a real market, they “keep in mind” not a concrete demand function on a whole interval of prices from zero to infinity, but a concrete desire to buy a certain quantity of demanded goods at a price acceptable for them which is near a known “yesterday’s” price. This is illustrated by an example of an ordinary buyer in a consumer market, who needs a certain amount of sugar in a week – but no more and no less. It is also true for a business company in a wholesale market: it should buy exactly as many raw materials and goods as are necessary for production, without creating superfluous stocks and with delivery “just in time”. Therefore, the demand function of an individual buyer can be distinct from zero only in a small interval of prices, near a known “yesterday’s” market price. In order to obtain market functions it is necessary to summarize these rather narrow functions, instead of traditional functions, distinct from zero in the whole interval of prices from zero to infinity. Moreover, the fact that in the traditional model practically all authors have the demand function converging to a maximum near the zero price (some authors even have it diverging to infinity), seems, in our opinion, to be an artificial property of a person – to take the maximum “for free”. In a real market buyers do not behave like that, and in practice no life is observed in the markets near zero prices. It is a dead zone; there is neither supply nor demand there.