RelativeResourceManager;JSESSIONID=QBvYMLQcgrfQ1PpNS1pWGy7cdfnX1R0YPRJs3MVpJX1wLsznq2zV!2107713582

# RelativeResourceManager;JSESSIONID=QBvYMLQcgrfQ1PpNS1pWGy7cdfnX1R0YPRJs3MVpJX1wLsznq2zV!2107713582

This preview shows pages 1–9. Sign up to view the full content.

ECON203 Microeconomic Analysis 2010 1 Lecture 3: Consumer welfare (some material continued from Lecture 2)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
ECON203 Microeconomic Analysis 2010 2 Income and substitution effects: Ordinary good ( q 1 , normal) 2 x 1 p increase) price ( Y 1 p ICC PCC 0 p Y 1 q 1 q I S G 1 q ( 29 Y , p , p D q 2 1 1 1 = ( 29 Y , p , p d q 2 1 1 1 =
ECON203 Microeconomic Analysis 2010 3 Ordinary (Marshallian) demand functions Ordinary (Marshallian) demand functions: quantities demanded at all prices and incomes. ( 29 ( 29 Y , p , p D q , Y , p , p D q 2 1 2 2 2 1 1 1 = = Ordinary demand functions contain both the income and substitution effects Ordinary demand functions are directly observable in data

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
ECON203 Microeconomic Analysis 2010 Compensated (Hicksian) demand functions Compensated (Hicksian) demand functions: q prices and utility levels ( 29 ( 29 u , p , p H q u , p , p H q 2 1 2 2 2 1 1 1 = = Compensated demand functions contain only the substitution effects. Compensated demand functions are can be inferred from data given an explicit utility function
ECON203 Microeconomic Analysis 2010 5 Compensated demand functions. The following diagrams shows the derivation of compensated demand function for q 1 ( 29 u p p H q 2 1 1 , = Just as ordinary demand functions can be defined for any given level of income, Y , so compensated demand functions can be defined for any given level of utility, u . It is common to focus on either the compensated demand function defined on the initial utility u 0 or on the utility level after the price change, 1 u .

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
ECON203 Microeconomic Analysis 2010 6 Compensated demand functions. relative to U 0 1 p let 2 = 2 q Y 1 p 1 1 p 0 1 p 1 1 p 0 1 p 0 u 1 u 1 q 1 q ICC I S compensated demand ordinary demand function
ECON203 Microeconomic Analysis 2010 7 Compensated demand functions. relative to U 1 1 p let 2 = 2 q Y 1 p 1 1 p 0 1 p 1 1 p 0 1 p 0 u 1 u 1 q 1 q ICC I S compensated demand ordinary demand function

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
ECON203 Microeconomic Analysis 2010 8 Estimates of demand elasticities Canada Greece U.K U.S Compensated Price Elasticities Food -0.54 -0.31 0.00 a -0.87 b Clothing -0.81 -0.14 -0.94 -1.31 Housing na -0.57 c -0.30 -0.39 Fuel -0.61 na -0.08 -0.54 Transport & Communication -0.71 -0.74 -1.17 -0.67 d Durables na -0.67 na -0.93 Income Elasticities Food 0.27 0.91 0.17 a 0.95 b Clothing 0.04 1.40 2.92 1.34 Housing na 0.84 c -0.02 0.76 Fuel 1.64 na 0.86 1.21 Transport & Communication 1.57 0.98 1.05 1.35 d Durables na 1.17 na 1.48 Sources: Canada Anderson and Blundell 1983, Greece: Mergos and Donatos 1989, U.K. Deaton and Muelbauer 1980, U.S. Taube and MacDonald 1991
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 34

RelativeResourceManager;JSESSIONID=QBvYMLQcgrfQ1PpNS1pWGy7cdfnX1R0YPRJs3MVpJX1wLsznq2zV!2107713582

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online