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Published on Aug 11, 2011
In the last lecture I showed that the Neoclassical model of consumer behavior doesn't work, and is computationally impossible. In this lecture, I show that even if it did work, a market demand curve derived by aggregating the demands of numerous utility-maximizing individuals can have any shape at all. The so-called Sonnenschein-Mantel-Debreu conditions (first discovered in 1953 by Gorman) show that even market demand can't be represented by the demand of a single utility-maximizing consumer--yet Neoclassical DSGE models treat the entire economy as a single utility maximizer.