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Unformatted text preview: Monotonic Transformations 2 f ( u ( x 1 , x 2 )) is a monotonic transformation of u ( x 1 , x 2 ) if, for all baskets A and B where u ( x A 1 , x A 2 ) > u ( x B 1 , x B 2 ) , f ( u ( x A 1 , x A 2 )) > f ( u ( x B 1 , x B 2 )) Monotonic Transformations 3 Elasticity of Substitution σ = ± ± ± ± %Δ( x 2 / x 1 ) %Δ MRS ± ± ± ± = ± ± ± ± MRSd ( x 2 / x 1 ) ( x 2 / x 1 ) dMRS ± ± ± ± = d ln ( x 2 / x 1 ) d ln  MRS  Elasticity of Substitution 2 u ( x 1 , x 2 ) = ( α xρ 1 + ( 1α ) xρ 2 )1 /ρ Homothetic Tastes Tastes are homothetic when MRS only depends upon the ratio x 2 / x 1...
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 Fall '09
 CUR
 Microeconomics, Utility, indifference curves, X1, MRS MRSd

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