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Unformatted text preview: Kagel and Kogut (1991) AER paper
(supplementary reading posted on LMS)
(supplementary reading posted on LMS).
• The heterogeneity of preferences and income levels
across individuals makes it extremely unlikely at the
across individuals makes it extremely unlikely at the
market level.
25 Ordinary and Compensated Demand Curves
Ordinary and Compensated Demand Curves
1. Marshallian (or ordinary) Demand curves
– Trace total price effect
2. Hicksian (or compensated) Demand curves
compensated) Demand curves
– Trace substitution effect only 26 Marshallian
Marshallian Demand
1. Holds money income constant
2. Utility varies along the demand curve
3. Incorporates both income and substitution effects
4. Slopes down, but theoretically could slope up 27 Hicksian
Hicksian Demand
1. Holds utility constant
2. Money income varies along the demand curve
3. Incorporates only the substitution effect
4. Always slopes down 28 Marshallian and Hicksian Demand Curves
Price of X Price of X Px’ Px’ Px Px Inc
Inc Sub DH
X’ DM X DH
DM Sub XCV XCV X0 X’ X0 • When X is norma...
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 Spring '13
 PaulRuud
 Microeconomics, Econometrics

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