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 əri əx2 дрг - дрі where, for each i = 1,2, z; denotes the Marshallian demand for good i and p; denotes the price of good i. Solution: By the Slutsky equation,

Economics For Today
10th Edition
ISBN:9781337613040
Author:Tucker
Publisher:Tucker
Chapter4: Markets In Action
Section: Chapter Questions
Problem 6SQ
icon
Related questions
Question

please  only do: if you can teach explain steps of how to solve each part

for ifererior SE>IE?

 

what happens to the SE please show each part of formula, when the other pice is normal how will it affect inferior
is is inferior cheaper?  why SE > 0 is IE <0 

 

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
?х1
дрг
=
where, for each i = 1,2, zi denotes the Marshallian demand for good i and p; denotes the
price of good i.
Solution: By the Slutsky equation,
VI
əx1
дрг
VI
Əh₁
дрг
Əh₂
др1
Əh₂
др1
Əh₂
<
əx2
api'
where the second line follows from Slutsky
the fourth from inferiority of good 2.
I2
X2
əxi
dw
дх1
dw
Əx₂
əx2
I1
др1 dw др1
symmetry, the third from normality of good 1, and
=
Transcribed Image Text: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 ?х1 дрг = where, for each i = 1,2, zi denotes the Marshallian demand for good i and p; denotes the price of good i. Solution: By the Slutsky equation, VI əx1 дрг VI Əh₁ дрг Əh₂ др1 Əh₂ др1 Əh₂ < əx2 api' where the second line follows from Slutsky the fourth from inferiority of good 2. I2 X2 əxi dw дх1 dw Əx₂ əx2 I1 др1 dw др1 symmetry, the third from normality of good 1, and =
Expert Solution
steps

Step by step

Solved in 3 steps with 4 images

Blurred answer
Knowledge Booster
Demand and Supply Curves
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.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Economics For Today
Economics For Today
Economics
ISBN:
9781337613040
Author:
Tucker
Publisher:
Cengage Learning
Micro Economics For Today
Micro Economics For Today
Economics
ISBN:
9781337613064
Author:
Tucker, Irvin B.
Publisher:
Cengage,
MACROECONOMICS FOR TODAY
MACROECONOMICS FOR TODAY
Economics
ISBN:
9781337613057
Author:
Tucker
Publisher:
CENGAGE L
Survey Of Economics
Survey Of Economics
Economics
ISBN:
9781337111522
Author:
Tucker, Irvin B.
Publisher:
Cengage,