For two-good Cobb-Douglas utility functions with decreasing returns to scale, this function islinearly proportional to utility. Shephard's Lemma gives this microeconomic function for a good as thepartial derivative of the expenditure function with respect to the price of the good. A key equation ofconsumer theory gives the result that the change in this function for a good
For two-good Cobb-Douglas utility functions with decreasing returns to scale, this function islinearly proportional to utility. Shephard's Lemma gives this microeconomic function for a good as thepartial derivative of the expenditure function with respect to the price of the good. A key equation ofconsumer theory gives the result that the change in this function for a good with respect to its price isdictated by only (*) substitution effects, not income effects; for this reason, this function is generallyreferred to as the compensated form of its variety, and hence can only have a negative slope. Thatequation dealing with this quantity is the Slutsky equation. This function for a good can be calculated bysolving the dual optimization problem to utility maximization which involves minimizing cost under autility constraint. For 10 points, name this type of demand function, which is contrasted with theMarshallian demand function.
For two-good Cobb-Douglas utility functions with decreasing returns to scale, this function islinearly proportional to utility.
Hicksian demand [prompt on demand before it is read]