ECON 212 Lecture Notes - Lecture 3: Inverse Demand Function, Quasilinear Utility, Utility

• School: Queen's University
• Department: Economics
• Course: ECON 212
• Professor: Anya Hageman

Document Summary

A is the exponent or parameter associated with x1. B is the exponent or parameter associated with x2. If the mrs (with the (-) sign removed), a/b is greater (>) than p1/p2 than the consumer spends all her money on x1 (and vice versa) Which will always give you: corresponding to the linear variable. The interior solution is found by solving the usual system of two equations must be compared to the budget line intercept (cid:1876)(cid:2869)=/(cid:1868)(cid:2869), (cid:1876)(cid:2869)=(cid:882), (cid:1853)(cid:1866)(cid:1877) (cid:1876)(cid:2869),(cid:1876)(cid:2870)(cid:1855)(cid:1867)(cid:1868)(cid:1853)(cid:1872)(cid:1854)(cid:1864)(cid:1857) (cid:1875)(cid:1872) (cid:1868)(cid:2869)(cid:1876)(cid:2869)+(cid:1868)(cid:2870)(cid:1876)(cid:2870)= (cid:1865)(cid:1853)(cid:1877) (cid:1854)(cid:1857) (cid:1855) (cid:1867)(cid:1871)(cid:1857)(cid:1866) (cid:1872) (cid:1857) (cid:1871)(cid:1867)(cid:1864)(cid:1873)(cid:1872)(cid:1867)(cid:1866) (cid:1871) (cid:1866)(cid:1856)(cid:1857)(cid:1857)(cid:1870)(cid:1865)(cid:1866)(cid:1853)(cid:1872)(cid:1857) These are the demand functions because they give us a quantity demanded of (cid:1876) for every price (cid:1868) To graph the demand (and keep the price on the vertical axis) use the inverse demand function: (cid:1868)(cid:2869)= (cid:3028)(cid:3028)+(cid:3029) /(cid:1876)(cid:2869) (cid:1876)(cid:2870)=(cid:882) (cid:1876)(cid:2870)=/(cid:1868)(cid:2870: for (cid:3028)(cid:3029)>(cid:1868)(cid:2869)/(cid:1868)(cid:2870) , for (cid:3028)(cid:3029)