Suppose that good 1 is normal and good 2 is inferior. Prove that the total effect on demand for good 1 of a marginal increase in the price of good 2 cannot exceed the total effect on demand for good 2 of a marginal increase in the price of good 1. That is, prove that əxi дрг 11 VI ?х1 дрг where, for each i = 1, 2, x; denotes the Marshallian demand for good i and p; denotes the price of good i. Solution: By the Slutsky equation, VI მhu дрг Əh₂ дру მh2 др1 Əh₂ дру S where the second line follows from Slutsky the fourth from inferiority of good 2. əx2 др 12 X2 1 1 əxi dw əri dw əx2 dw Əx₂ др symmetry, the third from normality of good 1, and
Suppose that good 1 is normal and good 2 is inferior. Prove that the total effect on demand for good 1 of a marginal increase in the price of good 2 cannot exceed the total effect on demand for good 2 of a marginal increase in the price of good 1. That is, prove that əxi дрг 11 VI ?х1 дрг where, for each i = 1, 2, x; denotes the Marshallian demand for good i and p; denotes the price of good i. Solution: By the Slutsky equation, VI მhu дрг Əh₂ дру მh2 др1 Əh₂ дру S where the second line follows from Slutsky the fourth from inferiority of good 2. əx2 др 12 X2 1 1 əxi dw əri dw əx2 dw Əx₂ др symmetry, the third from normality of good 1, and
Chapter4: Demand, Supply, And Market Equilibrium
Section: Chapter Questions
Problem 25P
Related questions
Question
please only do: if you can teach explain steps of how to solve each part
for ifererior SE>IE?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 3 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc
Exploring Economics
Economics
ISBN:
9781544336329
Author:
Robert L. Sexton
Publisher:
SAGE Publications, Inc