Inverting systems of demand functions (Q1065696)

Direct demand functions express quantities of goods demanded as functions of prices. Inverse demand functions express prices as functions of quantities. Mixed demand functions are a combination of both. For well- behaved demand functions, one requires that the quantity demanded of each good be negatively related to its own price. In addition, goods are called gross or imperfect substitutes if they exhibit either of the following properties. (1) An increase in the quantity of any good reduces demand faced by all other goods in the sense that the latter goods' prices are lower at constant quantities or that their quantities are lower at constant prices. (2) An increase in the price of any good increases demand faced by all other goods in the sense that the latter goods' prices are higher at constant quantities or that their quantities are greater at constant prices. This paper gives a set of sufficient conditions under which a system of direct demand functions for gross substitutes can be inverted to obtain a system of inverse demand functions for gross substitutes and vice versa. In essence, they require that the ''own effects'' of prices on quantities or quantities on prices dominate the ''cross effects.'' These same conditions also ensure that either system can be inverted to obtain systems of mixed demand functions which possess the properties of gross substitutes. By interchanging the role of prices and quantities, the results of this paper apply directly to goods which are imperfect complements.