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Lecture8 PDF
Lecture8 PDF
X1
Spring 2001 Econ 11--Lecture 8 5 Spring 2001 Econ 11--Lecture 8 6
Econ 11--Lecture 8 1
Professor Jay Bhattacharya Spring 2001
x1 = D1Hicksian (U , p1 , p2 ) =
∂E (U , p1 , p2 ) p1*
( )
p1*
( )
∂E U 0 , p1 , p2
ò D1 U , p1 , p2 dp1 = ò dp1 =
Hicksian 0
∂p1 p10 p10
∂p1
∂E (U , p1 , p2 ) ( ) ( )
x2 = D2Hicksian (U , p1 , p2 ) = = E U 0 , p1* , p2 − E U 0 , p10 , p2 = CV
∂p2
Spring 2001 Econ 11--Lecture 8 9 Spring 2001 Econ 11--Lecture 8 10
p1
Equivalent Variation in Income
x1 = D1Hicksian (U 0 , p1 , p2 ) (EV)
p1* • EV is the maximum amount the consumer
would be willing to pay to avoid a price
CV
change.
p10 • Given a price change from p0 to p*, how
much extra/less income is required to reach
final utility, U1 at the original prices p0?
x1
Spring 2001 Econ 11--Lecture 8 11 Spring 2001 Econ 11--Lecture 8 12
Econ 11--Lecture 8 2
Professor Jay Bhattacharya Spring 2001
x1
Spring 2001 Econ 11--Lecture 8 13 Spring 2001 Econ 11--Lecture 8 14
(
x1 = D1Hicksian U 1 , p1 , p2 ) – What is the most the residents would pay not to
have the freeway? EV
x1
Spring 2001 Econ 11--Lecture 8 15 Spring 2001 Econ 11--Lecture 8 16
Econ 11--Lecture 8 3
Professor Jay Bhattacharya Spring 2001
=
∆p1 0
2
[
x1 + x1* ]
*
x
1
0
x
1 x1
Spring 2001 Econ 11--Lecture 8 19 Spring 2001 Econ 11--Lecture 8 20
Econ 11--Lecture 8 4