Unit demand

In economics, a unit demand agent is an agent who wants to buy a single item, which may be of one of different types. A typical example is a buyer who needs a new car. There are many different types of cars, but usually a buyer will choose only one of them, based on the quality and the price.

If there are m different item-types, then a unit-demand valuation function is typically represented by m values ${\displaystyle v_{1},\dots ,v_{m}}$, with $v_{j}$ representing the subjective value that the agent derives from item $j$. If the agent receives a set $A$ of items, then his total utility is given by:

${\displaystyle u(A)=\max _{j\in A}v_{j}}$

since he enjoys the most valuable item from $A$ and ignores the rest.

Therefore, if the price of item $j$ is $p_{j}$, then a unit-demand buyer will typically want to buy a single item - the item $j$ for which the net utility ${\displaystyle v_{j}-p_{j}}$ is maximized.

Ordinal and cardinal definitions

A unit-demand valuation is formally defined by:

• For a preference relation: for every set $B$ there is a subset $A\subseteq B$ with cardinality $|A|=1$, such that $A\succeq B$.
• For a utility function: For every set $A$:^[1]

${\displaystyle u(A)=\max _{x\in A}u(\{x\})}$

Connection to other classes of utility functions

A unit-demand function is an extreme case of a submodular set function.

It is characteristic of items that are pure substitute goods.

See also

• Utility functions on indivisible goods
• Matching (graph theory)

References

1. Koopmans, T. C.; Beckmann, M. (1957). "Assignment Problems and the Location of Economic Activities". Econometrica. 25: 53. doi:10.2307/1907742. JSTOR 1907742.