Compensated Demand Curve:
The demand curves that we have discussed, and used, so far are called ordinary demand curves (or sometimes Marshallion demand curves). These demand curves are in principle observable if we could hold money income and other prices constant and only vary the price of one good. A purely theoretical construction is a compensated demand curve. Along this demand curve we must imagine that money income is constantly adjusted so that the consumer’s utility is kept at some given initial level (U0). For all prices above the initial price, an extra income is given (positive compensation) and for all prices below the initial price, money is taken away (a negative compensation or a tax). This demand curve is also called a Hicksian demand curve and we therefore use the letter “Hj to denote it, for example the Hicksian demand curve for good 1:
Q1 = H(p1, p2,U0).
Note that we do not include money income as an argument in this demand function, but the initial utility instead. Effectively, along this demand curve the income effect is eliminated due to instantaneous income compensation, and the slope of this function shows only the substitution effect. If we choose another, for example, higher utility level, the compensated demand curve will shift out to the right, since more will be demanded at each price by a consumer that prefers more to less.
Also, since for a normal good, the income and substitution effects reinforce each other the Hicksian demand function is steeper than the Marshallian demand function. This is illustrated in figure, where Q(p, Y0) is the Marshallian demand curve and H(p,U0) is the Hicksiand demand curve corresponding to the initial price, utility level, and money income level (p0,U0 and Y0). If the price increases to p1 the quantity demanded will decrease along the Marshallian demand curve to Q1i+s, but only to Q1s along the Hicksian demand curve (i and s stand for income and substitution effects). If we had begun at the final price (p1), but with the same money income (Y0), there is a new Hicksian demand curve going through the coordinate (Q1,Q1i+s), this corresponds to a lower utility level (U1). It is lower since the price has increased but money income is unchanged. For an inferior good the Marshallian demand function is steeper. While it is theoretically possible that the Marshallian demand function of a (very) inferior good has a positive slope, the Hicksian demand function is always negatively sloped.
Remember that the substitution effect is always negative.
Latest technology based Economics Online Tutoring Assistance
Tutors, at the www.tutorsglobe.com, take pledge to provide full satisfaction and assurance in Intermediate Microeconomics homework help via online tutoring. Students are getting 100% satisfaction by online tutors across the globe. Here you can get homework help for Intermediate Microeconomics, project ideas and tutorials. We provide email based Intermediate Microeconomics homework help. You can join us to ask queries 24x7 with live, experienced and qualified online tutors specialized in Intermediate Microeconomics. Through Online Tutoring, you would be able to complete your homework or assignments at your home. Tutors at the TutorsGlobe are committed to provide the best quality online tutoring assistance for Economics homework help and assignment help services. They use their experience, as they have solved thousands of the Computer assignments, which may help you to solve your complex issues of Intermediate Microeconomics. TutorsGlobe assure for the best quality compliance to your homework. Compromise with quality is not in our dictionary. If we feel that we are not able to provide the homework help as per the deadline or given instruction by the student, we refund the money of the student without any delay.
Want a trustworthy CAD and CAM Assignment Help Service within your budget? Get contact with our PhD tutors and score A++ at feasible prices.
there are two kinds in video modulation - positive modulation (while the intensity of picture brightness results increase in amplitude of the modulated envelope, it is termed as positive modulation.), negative modulation
tutorsglobe.com anatomical adaptations assignment help-homework help by online xeric habitats characterization tutors
Theory and lecture notes of Exchange Rate all along with the key concepts of Exchange rate, Six Key Indicators of Macroeconomics and nominal exchange rate. Tutorsglobe offers homework help, assignment help and tutor’s assistance on Exchange Rate.
Fermentation tutorial all along with the key concepts of History of fermentation, Classification of fermentation, Microbial fermentation, Enzymatic fermentation, Fermentation Process, Product recovery and purification during fermentation
tutorsglobe.com gynoecium assignment help-homework help by online flower-a metamorphosed shoot tutors
DC Power Units tutorial all along with the key concepts of Power Supply Types, Battery Power Supply, Unregulated Power Supply, Regulated Power Supply, AC/DC Supply, Switched-Mode Power Supply, Programmable Power Supply, Components of DC Supply Unit
Theory and lecture notes of ODE Boundary Value and Finite Differences all along with the key concepts of Beam With Tension, Steady State Heat and Diffusion. Tutorsglobe offers homework help, assignment help and tutor’s assistance on ODE Boundary Value and Finite Differences.
Chemical properties of Carbohydrates tutorial all along with the key concepts of Reactions involving Carbohydrates, Osazone Formation, Chain Shortening and Lengthening and Formation of Glycosides
tutorsglobe.com keynes aggregate demand equation assignment help-homework help by online keynesian theory of income determination tutors
Theory of Tree along with the key concepts of Binary tree, Minimum Spanning Trees, Finding Spanning Trees, Rooted tree, Forest, Assignment help and Homework help.
Soil Pollution tutorial all along with the key concepts of Soil Pollutants-Their Sources, Agriculture, Transport Mechanisms Conveying Pollutants to Soils, Atmospheric deposition, Consequences of Soil Pollution, Cases of Exposure to Pollution
Photometry tutorial all along with the key concepts of Photometry and eye, Photometric quantities, Photometric versus radiometric quantities, Photometric measurement methods
Avail our premium Business Management Assignment Help service at apt prices with 24x7 support to secure top grades.
www.tutorsglobe.com offers domain analysis homework help, assignment help, case study, writing homework help, online tutoring assistance by computer science tutors.
1959572
Questions Asked
3689
Tutors
1454591
Questions Answered
Start Excelling in your courses, Ask an Expert and get answers for your homework and assignments!!