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Benchmark Two-Good Utility Functions

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  • K. 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.

Suggested Citation

  • K. de Jaegher, 2007. "Benchmark Two-Good Utility Functions," Working Papers 07-09, Utrecht School of Economics.
  • Handle: RePEc:use:tkiwps:0709
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    References listed on IDEAS

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    1. 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.
    2. Epstein, Gil S & Spiegel, Uriel, 2000. "A Production Function with an Inferior Input," Manchester School, University of Manchester, vol. 68(5), pages 503-515, September.
    3. Liebhafsky, H H, 1969. "New Thoughts About Inferior Goods," American Economic Review, American Economic Association, vol. 59(5), pages 931-934, December.
    4. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    5. 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.
    6. Weber, Christian E, 2001. "A Production Function with an Inferior Input: Comment," Manchester School, University of Manchester, vol. 69(6), pages 616-622, December.
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    Cited by:

    1. J.W.B. Bos & E. Stam, 2011. "Gazelles, Industry Growth and Structural Change," Working Papers 11-02, Utrecht School of Economics.
    2. K.J.M. De Jaegher, 2010. "Giffen Behaviour and Asymmetric Substitutability," Working Papers 10-16, Utrecht School of Economics.
    3. K. de Jaegher, 2008. "Asymmetric substitutability: theory and some applications," Working Papers 08-02, Utrecht School of Economics.
    4. Kris De Jaegher, 2009. "Asymmetric Substitutability: Theory And Some Applications," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 838-855, October.

    More about this item

    Keywords

    Benchmark Utility Functions; Rules of Thumb;

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