marshalliandemandslides

# marshalliandemandslides - Marshallian Demand Marshallian...

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Marshallian Demand

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Marshallian Demand: Relating P 1 and X 1 x 1 x 2 x 1 p 1 U 1 x 2 1 x 1 1 x 1 1 Y/p 1 1 Y/p 2 p 1 1 Suppose P 1 increases … x 1 2 Y/p 1 2 U 2 x 2 2 p 1 2 x 1 2 d 1 0 0 0 : FOC ) ( ) , ( max 2 2 1 1 2 2 2 1 1 1 2 2 1 1 2 1 } , , { 2 1 = - - = = - = = - = - - + = x P x P Y P x U x P x U x x P x P Y x x U x x λ λ λ λ λ L L L L 2 2 1 * 2 1 2 1 * 1 ) , , ( ) , , ( d Y p p x d Y p p x = = utility increases as move downward along demand at every point on the demand curve the consumer is maximizing utility demand equation derives from FOC of constrained utility maximization Price- consumption path
Income Changes: Engel Curve vs. Shifting Demand Curve x 1 x 2 x 1 p 1 U 1 x 1 0 x 1 0 Y 0 /p 1 Y 0 /p 2 p 1 x 1 ' x 1 ' d 1 0 x 2 0 Y'/p 1 x 2 ' x 1 x 2 U 1 x 1 ' Y'/p 1 x 2 ' Income- consumption path U 2 U 2 Y'/p 2 Suppose income falls … Y'/p 2 x 1 x 1 0 x 1 ' Y Y 0 Y' Engel’s Curve Y 0 /p 1 x 1 0 Y 0 /p 2 x 2 0 d 1 ' Demand Curve

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Normal and Inferior Goods x 1 x 2 U 2 X 1 Y’/p 1 Y /p 2 x 1 0
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