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What is an example of Hicksian demand and how does it differ from other types of demand?
An example of Hicksian demand is when a consumer adjusts their purchasing choices in response to changes in prices, while keeping their level of satisfaction constant. This differs from other types of demand, such as Marshallian demand, which focuses on changes in purchasing choices based on changes in income and prices while maintaining the same level of utility.
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Explain what is meant by compensating variation and equivalent variation?
There are three central measures of welfare in economics:-Consumer Surplus (using a "marshallian demand function) -Equivalent Variation (using Hicksian demand function) -Compensating Variation (also using Hicksian demand function) Although consumer surplus is the most common measure of welfare it is flawed - it is based on a quasi linear demand function - one in which income has no effect on the demand for the good. However if there are large income effects involved; the demand curve is no longer a simple marginal value curve but one in which the value placed on the additional unit is heavily influenced by the amount spent on prior units. The consumer surplus now has no meaning in the marshallian demand context.We want to ideally examine the effect of a price change allowing income to alter but maintaining utility at some fixed level. Therefore we must use a Hicksian demand function - one in which a price change will be matched with a corresponding change in income such that utility is maintained at some level. We can now utilise equivalent and compensating variation to examine the changes in welfare of the associated price change.Equivalent variation is the income that you need to take away from an individual to make him equivalently worse off or better off following a price change.The Compensating variation on the other hand is the amount of income you need to compensate an individual following a price change so that he remains on the same level of utility. For Equivalent variation we maintain utility at the new price ratio whereas in the case of compensating variation we maintain utility at the old price ratio.Assuming the income effect is significant enough to disregard consumer surplus as an effective measure of welfare change and also a rise in price of good 1; the hicksian demand function which holds income constant will thus be steeper than the marshallian demand (assuming normal good - if inferior the opposite is true). The hicksian demand function relating to the original price level will be associated with a higher utility than the other hicksian associated with the new and higher price. However we cannot observe utility, hence we are using these functions. The equivalent variation will be smaller than the change in consumer surplus which in turn will be smaller than the compensating variation. The intuition behind this is that for a normal good more income is required to compensate the individual for a rise in price to maintain utility than income to be taken away from an individual such that he lies on a same lower utility.
Why do salaries for the same work differ throughtout a country and in other countries?
the law of supply and demand dicate different salaries
How does a change in quantity demanded differ from a change in demand?
A change in quantity demanded refers to a movement along the demand curve due to a change in price, while a change in demand refers to a shift of the entire demand curve due to factors other than price, such as income or preferences.
How does a change in demand differ from a change in quantity demanded, using an example to illustrate the distinction?
A change in demand refers to a shift in the entire demand curve due to factors like consumer preferences or income. On the other hand, a change in quantity demanded is a movement along the demand curve caused by a change in price. For example, if the price of smartphones decreases, leading to more people buying them, it represents a change in quantity demanded. However, if a new technology makes smartphones more desirable overall, causing people to buy more even at the same price, it would be a change in demand.
How do changes in demand differ from changes in quantity demanded?
Changes in demand refer to shifts in the entire demand curve due to factors like consumer preferences, income, or population. Changes in quantity demanded, on the other hand, refer to movements along the demand curve in response to changes in price.
Why does elasticity of demand differ from other commodities?
Because it doest not relate to consumers its effects on change in price
Explain what is meant by compensating variation and equivalent variation?
There are three central measures of welfare in economics:-Consumer Surplus (using a "marshallian demand function) -Equivalent Variation (using Hicksian demand function) -Compensating Variation (also using Hicksian demand function) Although consumer surplus is the most common measure of welfare it is flawed - it is based on a quasi linear demand function - one in which income has no effect on the demand for the good. However if there are large income effects involved; the demand curve is no longer a simple marginal value curve but one in which the value placed on the additional unit is heavily influenced by the amount spent on prior units. The consumer surplus now has no meaning in the marshallian demand context.We want to ideally examine the effect of a price change allowing income to alter but maintaining utility at some fixed level. Therefore we must use a Hicksian demand function - one in which a price change will be matched with a corresponding change in income such that utility is maintained at some level. We can now utilise equivalent and compensating variation to examine the changes in welfare of the associated price change.Equivalent variation is the income that you need to take away from an individual to make him equivalently worse off or better off following a price change.The Compensating variation on the other hand is the amount of income you need to compensate an individual following a price change so that he remains on the same level of utility. For Equivalent variation we maintain utility at the new price ratio whereas in the case of compensating variation we maintain utility at the old price ratio.Assuming the income effect is significant enough to disregard consumer surplus as an effective measure of welfare change and also a rise in price of good 1; the hicksian demand function which holds income constant will thus be steeper than the marshallian demand (assuming normal good - if inferior the opposite is true). The hicksian demand function relating to the original price level will be associated with a higher utility than the other hicksian associated with the new and higher price. However we cannot observe utility, hence we are using these functions. The equivalent variation will be smaller than the change in consumer surplus which in turn will be smaller than the compensating variation. The intuition behind this is that for a normal good more income is required to compensate the individual for a rise in price to maintain utility than income to be taken away from an individual such that he lies on a same lower utility.
Which preposition to use after differ?
The preposition "from" is typically used after the verb "differ." For example, you can say, "The two plans differ from each other in terms of cost."
Why do salaries for the same work differ throughtout a country and in other countries?
the law of supply and demand dicate different salaries
How does a change in quantity demanded differ from a change in demand?
A change in quantity demanded refers to a movement along the demand curve due to a change in price, while a change in demand refers to a shift of the entire demand curve due to factors other than price, such as income or preferences.
How does a change in demand differ from a change in quantity demanded, using an example to illustrate the distinction?
A change in demand refers to a shift in the entire demand curve due to factors like consumer preferences or income. On the other hand, a change in quantity demanded is a movement along the demand curve caused by a change in price. For example, if the price of smartphones decreases, leading to more people buying them, it represents a change in quantity demanded. However, if a new technology makes smartphones more desirable overall, causing people to buy more even at the same price, it would be a change in demand.
How do changes in demand differ from changes in quantity demanded?
Changes in demand refer to shifts in the entire demand curve due to factors like consumer preferences, income, or population. Changes in quantity demanded, on the other hand, refer to movements along the demand curve in response to changes in price.
What is an inferior good and how does it differ from other types of goods?
An inferior good is a type of good where demand decreases as consumer income increases. This is different from normal goods, where demand increases as income increases, and luxury goods, which have high demand regardless of income level.
What is zero demand?
When the demand for a product is not present yet the product is bought then it is called zero demand...for example - the demand for old newspapers. It may be bought for other purposes and not for reading it or historians and others might buy to read it too.
What is the difference between complementary and substitute goods, and can you provide one example of each type of good?
Complementary goods are products that are used together, where the demand for one good increases the demand for the other. An example of complementary goods is peanut butter and jelly. Substitute goods are products that can be used in place of each other, where the demand for one good increases as the price of the other good increases. An example of substitute goods is Coke and Pepsi.
How does a change in demand differ from a change in quantity demanded in the market?
A change in demand refers to a shift in the entire demand curve due to factors like consumer preferences or income, leading to a new equilibrium price and quantity. On the other hand, a change in quantity demanded is a movement along the demand curve caused by a change in price, keeping all other factors constant.
What is a normal good and how does it differ from other types of goods?
A normal good is a type of good where demand increases as income rises. This is different from inferior goods, where demand decreases as income rises, and luxury goods, which are in higher demand as income rises but are not considered necessary for basic living.
