Economics 2010a Fa2003 Edward L. Glaeser Lecture 4
Economics 2010a Fall 2003 Edward L. Glaeser Lecture 4
4. Welfare Analysis and other Issues Measuring Welfare b. First Order and Second Order Losses C. Taxes and Welfare d. Household production(did last class) The Hedonic Approach
4. Welfare Analysis and Other Issues a. Measuring Welfare b. First Order and Second Order Losses c. Taxes and Welfare d. Household Production (did last class) e. The Hedonic Approach
f. The Theory of Equalizing Differentials g. Application Land Prices and Consumption
f. The Theory of Equalizing Differentials g. Application: Land Prices and Consumption
A few useful utility functions to think about (1)Quasi-Linear Preferences, i.e U(x1, x2,.xL=x1+o(x2, ...xL) First order conditions are then pi tor all i >1 This means that consumption of all goods except for good one is independent of income and depends only on prices. Good one just takes up the residual income
A few useful utility functions to think about: (1) Quasi-Linear Preferences, i.e. Ux1, x2,... xL x1 x2,... xL First order conditions are then: xi pi for all i 1. This means that consumption of all goods, except for good one is independent of income and depends only on prices. Good one just takes up the residual income
2)Homothetic Preferences(MWG Definition 3. B6 )A monotone preference relation on X=Rl is homothetic if x-y then ax~ ay for any a≥0 (Parallel indifference curves)-homothetic preferences can be represented by a utili ity function u(x) that is homogeneous of degree one, i. e au(x=u(ax) for all positive a Does that mean that utility functions that are not homogeneous of degree one cant be homothetic?
(2) Homothetic Preferences (MWG Definition 3.B.6) A monotone preference relation on X L is homothetic if x y then x y for any 0. (Parallel indifference curves)– homothetic preferences can be represented by a utility function ux that is homogeneous of degree one, i.e. ux ux for all positive . Does that mean that utility functions that are not homogeneous of degree one can’t be homothetic?