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The Hicksian demand function isolates the substitution effect by supposing the consumer is compensated with exactly enough extra income after the price rise to purchase some bundle on the same indifference curve. [2] If the Hicksian demand function is steeper than the Marshallian demand, the good is a normal good; otherwise, the good is inferior.
This question comes in two parts. Given a consumer's utility function, prices, and a utility target, how much money would the consumer need? This is answered by the expenditure function. what could the consumer buy to meet this utility target while minimizing expenditure? This is answered by the Hicksian demand function.
where (,) is the Hicksian demand for good , (,) is the expenditure function, and both functions are in terms of prices (a vector) and utility . Likewise, in the theory of the firm , the lemma gives a similar formulation for the conditional factor demand for each input factor: the derivative of the cost function c ( w , y ) {\displaystyle c ...
where (,) is the Hicksian demand and (,) is the Marshallian demand, at the vector of price levels , wealth level (or income level) , and fixed utility level given by maximizing utility at the original price and income, formally presented by the indirect utility function (,).
The debate concerned the nature and role of capital goods and a critique of the neoclassical vision of aggregate production and distribution. The question of whether the natural growth rate is exogenous, or endogenous to demand (and whether it is input growth that causes output growth, or vice versa), lies at the heart of the debate.
Hicks decomposition, Hicksian decomposition, Hicksian decomposition of demand-> concept in economics. See Slutsky equation and Hicksian demand function; Gains from production, Gains from specialization-> This is the term for the benefits that occur due to the shift in supply after trade takes place
The relationship between the utility function and Marshallian demand in the utility maximisation problem mirrors the relationship between the expenditure function and Hicksian demand in the expenditure minimisation problem. In expenditure minimisation the utility level is given and well as the prices of goods, the role of the consumer is to ...
The compensated demand function is named the Hicksian demand function in memory of him. In 1972 he received the Nobel Memorial Prize in Economic Sciences (jointly) for his pioneering contributions to general equilibrium theory and welfare theory. [1]