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Benchmark Two‐Good Utility Functions

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  • KRIS DE JAEGHER

Abstract

Benchmark two‐good utility functions involving a good with zero income elasticity and unit income elasticity are familiar. In this paper we derive 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.

Suggested Citation

  • Kris De Jaegher, 2008. "Benchmark Two‐Good Utility Functions," Manchester School, University of Manchester, vol. 76(1), pages 44-65, January.
    • Handle: RePEc:bla:manchs:v:76:y:2008:i:1:p:44-65
    DOI: 10.1111/j.1467-9957.2007.01049.x
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    References listed on IDEAS

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    1. Gil S. Epstein & Uriel Spiegel, 2000. "A Production Function with an Inferior Input," Manchester School, University of Manchester, vol. 68(5), pages 503-515, September.
    2. repec:bla:manchs:v:68:y:2000:i:5:p:503-15 is not listed on IDEAS
    3. Christian E. Weber, 2001. "A Production Function with an Inferior Input: Comment," Manchester School, University of Manchester, vol. 69(6), pages 616-622, December.
    4. Liebhafsky, H H, 1969. "New Thoughts About Inferior Goods," American Economic Review, American Economic Association, vol. 59(5), pages 931-934, December.
    5. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    6. 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.
    7. Xiangkang Yin, 2001. "A Tractable Alternative to Cobb‐Douglas Utility for Imperfect Competition," Australian Economic Papers, Wiley Blackwell, vol. 40(1), pages 14-21, March.
    8. repec:bla:manchs:v:69:y:2001:i:6:p:616-22 is not listed on IDEAS
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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. J.W.B. Bos & E. Stam, 2011. "Gazelles, Industry Growth and Structural Change," Working Papers 11-02, Utrecht School of Economics.
    3. K.J.M. De Jaegher, 2010. "Giffen Behaviour and Asymmetric Substitutability," Working Papers 10-16, Utrecht School of Economics.

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