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Benchmark two-good utility functions

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  • K.J.M. De Jaegher

Abstract

Benchmark two-good utility functions involving a good with zero income elasticity and unit income elasticity are well known. This paper derives utility functions for the additional benchmark cases where one good has zero cross-price elasticity, unit own-price elasticity, and zero own price elasticity. It is shown how each of these utility functions arises from a simple graphical construction based on a single given indifference curve. Also, it is shown that possessors of such utility functions may be seen as thinking in a particular sense of their utility, and may be seen as using simple rules of thumb to determine their demand.

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/31473/07-09.pdf
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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 07-09.

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Length: 20 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:use:tkiwps:0709

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Keywords: Benchmark Utility Functions; Rules of Thumb;

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  1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  2. Weber, Christian E, 2001. "A Production Function with an Inferior Input: Comment," Manchester School, University of Manchester, vol. 69(6), pages 616-22, December.
  3. Moffatt, Peter G., 2002. "Is Giffen behaviour compatible with the axioms of consumer theory?," Journal of Mathematical Economics, Elsevier, vol. 37(4), pages 259-267, July.
  4. Yin, Xiangkang, 2001. "A Tractable Alternative to Cobb-Douglas Utility for Imperfect Competition," Australian Economic Papers, Wiley Blackwell, vol. 40(1), pages 14-21, March.
  5. Liebhafsky, H H, 1969. "New Thoughts About Inferior Goods," American Economic Review, American Economic Association, vol. 59(5), pages 931-34, December.
  6. Epstein, Gil S & Spiegel, Uriel, 2000. "A Production Function with an Inferior Input," Manchester School, University of Manchester, vol. 68(5), pages 503-15, September.
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Cited by:
  1. Kris De Jaegher, 2009. "Asymmetric Substitutability: Theory And Some Applications," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 838-855, October.
  2. K.J.M. De Jaegher, 2010. "Giffen Behaviour and Asymmetric Substitutability," Working Papers 10-16, Utrecht School of Economics.

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