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Edward R. Morey Feb 20, 2002
Hicksian Demand Functions,
Consider a world with 2 goods (
x
and
y
), where Wilbur has welldefined preferences over bundles of
those two goods, and those preferences can be represented by the utility function
.
Wilbur has income
m
and faces the parametric prices
p
x
and
p
y
.
So Wilbur chooses the bundle that
max
s.t.
.
Consider Wilbur’s Hicksian (conditional) demand functions for
x
and
y
.
where
x
h
is the amount of
x
Wilbur would purchase to achieve utility level
u
given the prices
p
x
and
p
y
.
The problem is
min
wrt to
x
and
y
s.t.
The solution is
that
x
and
y
that
min the cost of producing
u
utility
given preference
and the prices
p
x
and
p
y
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Edward R. Morey Feb 20, 2002
So, Hicksian demand functions are the solution to a cost minimum problem.
What would one get if one plugged
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 Spring '11
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