This preview shows pages 1–10. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: Lecture 5 1minute review Quasilinear Demand Functions X ( p x ,p y ,M ) ,Y ( p x ,p y ,M ) • Corner solutions Income/Substitution Effects • Slutsky • Hicks Compensated Demand Functions (Hicks) 1 Sometimes pictures/graphs are useful. • own price demand function : graph X as a function of p x – keeping p y ,M constant • other price demand function : graph X as a function of p y – keeping p x ,M constant • Engel curve : graph X as a function of M – keeping p x ,p y constant • income expansion path trace optimal choice as M ↑ – keeping p x ,p y constant 2 Example: CobbDouglas utility function U ( x,y ) = x a y b X ( p x ,p y ,M ) = a a + b M p x Y ( p x ,p y ,M ) = b a + b M p y 3 4 5 6 7 Do these calculations for CES utility U ( x,y ) = 5 x 1 / 5 + 5 y 1 / 5 Demand functions X ( p x ,p y ,M ) ,Y ( p x ,p y ,M ) Lagrangian L ( x,y,λ ) = 5 x 1 / 5 + 5 y 1 / 5 λ ( p x x + p y y M ) = 0 Equations x 4 / 5 λp x = 0 y 4 / 5 λp y = 0 p x x + p y y M = 0 8 x 4 / 5 p x = y 4 / 5 p y y 4 / 5 = p y p x !...
View
Full
Document
This note was uploaded on 04/01/2010 for the course ECON Econ 11 taught by Professor Mcdevitt during the Fall '07 term at UCLA.
 Fall '07
 McDevitt

Click to edit the document details