If there is a fixed interest rate then pi=(1+r-(-l, which means x;=x1((1+r)
If there is a fixed interest rate, then pi 1 ri1 , which means xi x11 r i1 1
a. Measuring Welfare In general, "util units is pretty hard to use in measuring welfare Starting with utility maximization is helpful in showing whether utility rises or falls with a particular perturbation, but for quantifying changes, it's a hard road The expenditure function is a more natural means of approaching welfare calculations. It can put the losses/gains in dollar units For example, for any change in prices(due to supply shifts or taxes )where e(po, u), then e(pl, u-e(po, u can be seen as the welfare loss from the change In prices
a. Measuring Welfare In general, "util" units is pretty hard to use in measuring welfare. Starting with utility maximization is helpful in showing whether utility rises or falls with a particular perturbation, but for quantifying changes, it’s a hard road. The expenditure function is a more natural means of approaching welfare calculations. It can put the losses/gains in dollar units. For example, for any change in prices (due to supply shifts or taxes) where w ep0, u, then ep1,u ep0,u can be seen as the welfare loss from the change in prices
The quantity e(P1,u)-e(0,) de(p, u) 如=h(,)p po po If you happen to know the Hicksian demand function, you're done A few examples- if the price change is only for one commodity, and the Hicksian demand for that commodity is linear, you are in the usual triangle case, i.e h(p, u)=ho-hip, yields ho(pi-po)-thi(pi-pd)or PI-po(ho-hi 23
The quantity ep1, u ep0, u p0 p1 ep,u p dp p0 p1 hp,udp If you happen to know the Hicksian demand function, you’re done. A few examples– if the price change is only for one commodity, and the Hicksian demand for that commodity is linear, you are in the usual triangle case, i.e. hp,u h0 h1p, yields h0p1 p0 1 2 h1p1 2 p0 2 or p1 p0 h0 h1 p1p0 2