Rubinstein2005-page88

Rubinstein2005-page88 - from a budget set ( p ∗ , w ∗ )...

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October 21, 2005 12:18 master Sheet number 86 Page number 70 70 Lecture Six Figure 6.1 The indirect utility function is quasi-convex. or x ( p 2 , w 2 ) % z . From x ( p 1 , w 1 ) % x ( p 2 , w 2 ) it follows that x ( p 1 , w 1 ) % z . Example: In the single commodity case, each % -indifference curve is a ray. Assuming monotonicity of % , the slope of an indifference curve through ( p 1 , w ) is x 1 ( p 1 , w ) = w / p 1 . Roy’s Equality We will now look at a method of deriving the consumer demand function from indirect preferences. The basic idea is that starting
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Unformatted text preview: from a budget set ( p ∗ , w ∗ ) , any change of ε in the price of commod-ity k combined with a change of ε x k ( p ∗ , w ∗ ) in wealth cannot be undesirable. Thus, when indirect preferences are differentiable, the tangent to the indifference curve of the indirect preferences through ( p ∗ , w ∗ ) gives the demand for that budget set....
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This note was uploaded on 12/29/2011 for the course ECO 443 taught by Professor Aswa during the Fall '10 term at SUNY Stony Brook.

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