Compensated demand curve, Microeconomics

Assignment Help:

Compensated Demand Curve:

Compensated demand function for a commodity (say x1) of an individual consumer represents demand quantity for that good (which is purchased by the consumer) as a function of price of that good and prices of other goods under constant real income and constant other things. 

Notationaly, it is given by x1=x1(p1, p2, y),

where y is the real income. Demand curve for a good showing the relationship between demand quantity for that good and its own price given other things and given real income is known as compensated demand curve along which real income is constant (real income is defined by the ratio between money income and price level). Along the demand curve price of that good changes, so money income should be proportionately adjusted or compensated such that real income is constant. That is why the corresponding demand function and demand curve is known as compensated demand function and compensated demand curve.  

There are two different approaches to the measurement of real income, viz.,  

•  Hicksian Approach: In Hicksian approach, real income is measured in forms of utility. A constant real income means a constant utility. Thus, demand quantity for a good purchased by a consumer as a function of prices of all goods under constant utility and constant other things is known as compensated Hicksian demand function. 

Demand curve for a commodity showing the relationship between quantity demand for that commodity and it's own price under constant other things and constant real income in terms of utility is known as compensated Hicksian demand curve. 

•  Slutsky's Approach: In this approach, real income is measured in terms of purchasing power. A constant real income means a constant purchasing power (it is denoted by yp). Demand quantity for a good purchased by a consumer as a function of prices of all goods under constant other things and constant purchasing power is known as compensated Slutsky's demand function and corresponding demand curve is known as compensated Slutsky's demand curve.   


Related Discussions:- Compensated demand curve

Explain the various forms of economic integration, Question: (a) Descri...

Question: (a) Describe the two major developments which have led in the adoption of Import Substitution Industrialisation by Developing Countries in the 1940s/50s. (b) Ill

Rent, explain two theories of economic rent

explain two theories of economic rent

Production function, Your firms production function : Q=4K^1/2L^1/2 Suppos...

Your firms production function : Q=4K^1/2L^1/2 Suppose that the price of labor is $5 and the price of capital is $20. Your firm desires to produce 200 units of output. How much

Concentration ratio cr4, "If for a certain market, the concentration ratio ...

"If for a certain market, the concentration ratio CR4 (the combined market share of the 4 largest firms) is 1, its Herfindahl index is at least 0.25." Describe the given statement.

Level of aggregate demand in economy, Q. Level of aggregate demand in econo...

Q. Level of aggregate demand in economy? Demand-pull inflation takes place when there is an increase in level of aggregate demand in economy. Aggregate demand comprises five co

Determine the non orthogonal - anova, 1. The two-way ANOVA, non-orthogonal ...

1. The two-way ANOVA, non-orthogonal case, has been a vexing problem for ANOVA researchers for many years.  Please answer the following questions concerning the two-way non-orthogo

Policy process, explain stages and various coordination mechanism involve...

explain stages and various coordination mechanism involved in policy process

Demand , Why demand curve is always negative and write its effects.

Why demand curve is always negative and write its effects.

Draw a marginal utility curve , Draw a marginal utility cureve for a good t...

Draw a marginal utility cureve for a good that has a constant marginal utility

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd