THÔNG TIN TÀI LIỆU
CHAPTER • Individual and Market Demand 157 budget line moves to RT), we take away enough income so that the individual is no better off (and no worse off) than he was before To so, we draw a budget line parallel to RT If the budget line passed through A, the consumer would be at least as satisfied as he was before the price change: He still has the option to purchase market basket A if he wishes According to the Hicksian substitution effect, therefore, the budget line that leaves him equally well off must be a line such as R’T’, which is parallel to RT and which intersects RS at a point B below and to the right of point A Revealed preference tells us that the newly chosen market basket must lie on line segment BT' Why? Because all market baskets on line segment R' B could have been chosen but were not when the original budget line was RS (Recall that the consumer preferred basket A to any other feasible market basket.) Now note that all points on line segment BT' involve more food consumption than does basket A It follows that the quantity of food demanded increases whenever there is a decrease in the price of food with utility held constant This negative substitution effect holds for all price changes and does not rely on the assumption of convexity of indifference curves that we made in Section 3.1 (page 69) • Hicksian substitution effect Alternative to the Slutsky equation for decomposing price changes without recourse to indifference curves In §3.1, we explain that an indifference curve is convex if the marginal rate of substitution diminishes as we move down along the curve In §3.4, we explain how information about consumer preferences is revealed through the consumption choices that consumers make EXERCISES Which of the following utility functions are consistent with convex indifference curves and which are not? a U(X, Y) = 2X + 5Y b U(X, Y) = (XY).5 c U(X, Y) = Min (X, Y), where Min is the minimum of the two values of X and Y Show that the two utility functions given below generate identical demand functions for goods X and Y: a U(X, Y) = log(X) + log(Y) b U(X, Y) = (XY).5 Assume that a utility function is given by Min(X, Y), as in Exercise 1(c) What is the Slutsky equation that decomposes the change in the demand for X in response to a change in its price? What is the income effect? What is the substitution effect? Sharon has the following utility function: U(X, Y) = 1X + 1Y where X is her consumption of candy bars, with price PX = $1, and Y is her consumption of espressos, with PY = $3 a Derive Sharon’s demand for candy bars and espresso b Assume that her income I = $100 How many candy bars and how many espressos will Sharon consume? c What is the marginal utility of income? Maurice has the following utility function: U(X, Y) = 20X + 80Y - X - 2Y where X is his consumption of CDs with a price of $1 and Y is his consumption of movie videos, with a rental price of $2 He plans to spend $41 on both forms of entertainment Determine the number of CDs and video rentals that will maximize Maurice’s utility
Ngày đăng: 26/10/2022, 08:54
Xem thêm: