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Cobb-Douglas) individual preferences aren't able generate a linear demand curve so directly, as you can directly experiment with this software.
Indeed, it is particularly interesting to re-interpret the reserve price as an income indicator, arguing a positive correlation between income and reserve price.
This can be particularly useful if you intend to build your own model, but also to better understand this methodology.
We shall do something more than a mere description: we are giving in your hands a model in which these rules have been implemented to let you make experiments, since you can download "Race to market" for free from the Economics Web Institute.
Individual decision-making about consumption has been the subject of many theories and approaches.
In this paper, we are interested to propose some steps to include consumer decision making and behaviour in formal models, trying to do this in a more realistic way than the neoclassical theory.
it is too new and unfamiliar, with the consumer being characterised by being at least somewhat neophobic). And you'll not buy an irrational quantity of the good simply because in this way you exhaust your budget constraint - as the mainstream model of consumer choice would dictate.
The easiest decision-making rule in this case is to fix a maximum acceptable price (often called "reserve price"). The budget exhaustion rule, which would leave an empty wallet each time you exit a shop, is very comfortable for mathematical technicalities but it is at odd with real decision making of consumers.
Fix your reserve price and give a look on the back cover to the actual price. And they run to a cash machine if this exceptionally would not be the case.Then we shall refer reserve prices to income, so that we shall derive the shape of the demand curve from income distribution.A linear demand curve arises from a uniform distribution of reserve prices between two boundaries (min & max), be it a stochastic or deterministic uniform distribution.That simple rule gives a direct answer to the question. Individual elasticity to price is zero except when the price jumps across the line of the maximum acceptable price.The overall quantity sold will depend on price, since a few consumers changes their quantity from zero to one (if the price falls) or from one to zero (if the price increases). In particular we shall link the shape of the demand curve to the distribution of reserve price in the consumers' population.