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Benchmark two-good utility functions

  • K.J.M. De Jaegher

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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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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  1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  2. Liebhafsky, H H, 1969. "New Thoughts About Inferior Goods," American Economic Review, American Economic Association, vol. 59(5), pages 931-34, December.
  3. 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.
  4. Weber, Christian E, 2001. "A Production Function with an Inferior Input: Comment," Manchester School, University of Manchester, vol. 69(6), pages 616-22, December.
  5. Xiangkang Yin, 2000. "A tractable alternative to Cobb-Douglas utility for imperfect competition," Working Papers 2000.10, School of Economics, La Trobe University.
  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.
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