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Topic: Compensated Demand Curve

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	LECTURE #6
		The budget line that is tangent to the indifference curve has the property that it represents the cheapest amount of expenditure needed to achieve the given level of utility.
		By the Envelope theorem, the amount that you have to be compensated by in order to remain at the same utility level is the change in price (d) times the amount of consumption of x (the area of the rectangle).
		It has some problems such as the ambiguity as to whether we should use the compensated demand or the regular demand function (it is not clear whether you take the higher or lower utility level).
	ist-socrates.berkeley.edu /~sgoldman/101a/Lectures/06-TO-08.htm (3325 words)

	A good introductory micro text that deals with these issues is Paul Samuelson and William Nordhaus, Micro-Economics, ...
		A demand curve for a particular commodity can be defined as a locus of points, each of which shows the maximum quantity of the commodity that will be purchased at a particular price.
		Demand elasticities are similar to the supply elasticities discussed earlier in that they are a ratio of relative changes in price to the corresponding ratio of relative changes in quantity consumed.
		Therefore, the area under the demand curve and above the price line is "surplus" (unspent income) of consumers; consumers are able to obtain a unit of the commodity at a price which is less than their marginal willingness to pay for it.
	www.stanford.edu /group/FRI/indonesia/courses/manuals/multimarket/Output/chapt1.html (4894 words)

	Chapter3
		Since a decrease in the price of one unit along a linear demand curve will result in an increase in the quantity demanded by a constant amount, the price elasticity is constant for all quantities along a linear demand curve.
		Cari Obeck's demand function for tuna is given by: q=2m/5p where q is the number of cans of tuna demanded, p is the price of tuna, and m is her income.
		Normal good.If the compensated demand curve for peanuts is steeper than the ordinary demand curve, this means that the TE is larger than the SE., and both are negative.
	www.sfu.ca /~wainwrig/Econ301/Chapter3.html (1127 words)

	Econ 173 (Site not responding. Last check: 2007-10-31)
		A cut in price will be more than offset by the rise in quantity demanded if demand is elastic, because elastic demand implies that percent changes in quantity demanded are greater in absolute value than percent changes in price.
		Compensating variation in income from a price change is the area between the compensated demand curve and the price axis while the gain in consumer surplus is the area between the ordinary demand curve and the price axis.
		Compensating variation would likely be smaller than the gain in consumer surplus because the compensated demand curve is usually steeper than the ordinary demand curve.
	www.drake.edu /cbpa/econ/boal/173/99fall/99fmid1k.html (301 words)

	Appendixes \| Student Resources \| Microeconomics and Behavior
		Not all demand curves have this property, however; on the contrary, there are demand curves for which price elasticity can remain constant or even rise with movements down the demand curve.
		Thus the slope of the demand curve at (2, 1) is 0.001/(-0.002) = -
		The end result is that the relevant demand curve for studying the effects of a tax on a good is the income-compensated demand curve.
	www.mhhe.com /economics/frank4/student/appendixes/appendix4.mhtml (2425 words)

	[No title]
		Let ((>0) be the domestic compensated demand elasticity in the importing country for good X2 and let (be the domestic supply elasticity for the same good.
		Define compensated imports as m2 = c2 - x2, where the latter variables are domestic consumption (on the compensated demand curve) and production.
		Draw demand and supply curves in F and H and derive and draw F's import demand curve and H's export supply curve.
	www.colorado.edu /Economics/courses/maskus/8413/8413PS2f99.doc (715 words)

	[No title]
		Explain, using an income compensated demand curve, how a per unit tax on a good can reduce its consumption even if the government uses the tax revenue to make consumers as well off as they were before the tax was imposed.
		Demand 1 is less elastic at point B than is demand 2.
		The steeper the demand curve for a good relative to the supply curve for that good the greater the proportion of the tax on that good that will fall on buyers.
	www.londonmet.ac.uk /library/q60297_24.doc (1799 words)

	KSU Economics: Sadia Mariam Malik (Site not responding. Last check: 2007-10-31)
		As we have two types of demand curves therefore, we should distinguish between compensated and uncompensated demand curve.
		This means the demand curve is relatively flatter.
		This means that the demand curve is relatively steeper.
	www.k-state.edu /economics/malik/lect11sp01.html (555 words)

	Some Estimates of the Contribution of Information Technology to Consumer Welfare
		Bresnahan (1986) has shown that the area under the derived demand curve is also the appropriate estimator for consumer surplus in regulated industries, and that when competition is imperfect, it will generally underestimate total surplus created by a price change.
		The appropriate demand curve to use for exact consumer surplus is the compensated demand curve, which is the amount that the consumer would demand if income were adjusted sufficiently to maintain the same utility level.
		Presumably demand, too, has shifted over time, but it is likely that shifts in demand are orders of magnitude smaller than movements along the demand curve.
	ccs.mit.edu /papers/CCSWP161/CCSWP161.html (7145 words)

	[No title]
		Demand curves tend to be more elastic in the long run than in the short run.
		The economist that you have hired tells you that the demand for plumbers in Austin is Q = 1,200 - 100W, where Q is the number of plumbers employed and W is their wage.
		Prove that for a monopolist faced with a straight lined demand curve and forced to charge a uniform price to all buyers, total revenue will be at a maximum if the quantity sold is exactly half the quantity which buyers would take at a price of zero.
	www.gmu.edu /departments/economics/wew/syllabi/questions.html (5721 words)

	[No title] (Site not responding. Last check: 2007-10-31)
		Problem 2: Assume the demand for a good is Q = A/P + B, where A and B are constants (A is a positive number; B is either positive or negative).
		Use the point-elasticity formula to determine which demand curve is most elastic at any particular price.
		Through a market research program the demand curve is estimated to be: Q = 40000 - 20P, where Q and P denote drug sales and price, respectively.
	www.georgetown.edu /faculty/poiriere/micro/exercises/lesson8.html (378 words)

	[No title]
		Total consumer surplus Marshall viewed the demand curve as indicating the amount consumers are willing to pay (WTP) for the marginal unit.
		This is an inaccurate measure of consumer surplus, because it ignores the income effect associated with compensation, ie the movement from B to C in the top part of the diagram.
		It turns out that the CV is the area under the compensated demand curve, bigger than the CS (smaller for an inferior good).
	www.sussex.ac.uk /Units/economics/micro1/lectures/surplus.doc (1644 words)

	[No title]
		Assume that the marginal cost of beef is constant at $5.00 per pound (so that the supply curve is horizontal at P=$5.00) and that the demand curve is downward sloping.
		Suppose that the compensated labor supply function is perfectly inelastic.
		Both farmers have compensated labor supply schedules which are much less elastic than the construction worker’s supply curve.
	www.k-state.edu /economics/turner/633review2.doc (1055 words)

	[No title]
		Since demand is elastic with respect to price, a reduction in price will increase total revenue.
		Now the demand for tickets is changed leading to a change in MR and a change in price.
		This is by definition a compensated demand curve 11.
	www.maxwell.syr.edu /maxpages/classes/ECN601S1/answer2.doc (807 words)

	UCLA; Economics 134A; Cameron; Practice Exam Questions (Site not responding. Last check: 2007-10-31)
		Simultaneously, the quantities demanded of each good must be such that the total amounts available of each good are just exactly matched by the total demands across these two consumers.
		If there is excess demand for one good, and deficient demand for the other, this disequilibrium in prices will produce pressure for prices to change, bringing demands and supplies into line.
		Economists prefer to use the Hicksian-compensated demand curve for welfare analysis, although we often have to settle for an approximation based on the Marshallian demand curve (which can be somewhat biased).
	www.sscnet.ucla.edu /ssc/labs/cameron/e134s01/e134px4_ans.htm (502 words)

	MECO 6201 –Business Economics, Summer 2002– Test 1
		When the market price is relatively low, because then demanders can buy all they want but suppliers cannot make a profit.
		the demand curve for restaurant meals to shift to the left.
		The income elasticity of demand for a particular good is 1.5.
	www.utdallas.edu /~plewin/MECO6303Fall2004test1.htm (841 words)

	[No title]
		Intuitively, if the optimal indifference curve is tangent to the budget line at (x,y), then the indifference curve through (tx, ty) will be tangent to the budget line that has “t” times as much income as originally (and the same prices).
		This is useful since indifference curves of higher utility are simply copies of those at lower utility levels, thus results obtained by focusing one (or a few) indifference curve will likely not differ greatly if a different indifference curve (or range of curves) was studied.
		Positive income compensation makes sense because there was a price increase, after which utility would fall (at point C relative to A), so to maintain utility at original level, the consumer needs more income to compensate for the price increase.
	www.davidson.edu /academic/economics/foley/eco202_f05/exam1_sol_f04.doc (2265 words)

	[No title]
		If the compensated demand curve in the market for good Z is perfectly inelastic then a tax on Z will have no excess burden.
		In this case compensated demand curve is vertical and EV=taxes.
		Hicksian (compensated meat demand: Hm= V (Pr /Pm)0.5.
	www.bilkent.edu.tr /~cokten/econ351/Midterm2as.doc (775 words)

	[No title]
		Compensated and Marshallian (uncompensated) demand curves Marshallian demand: M is fixed Compensated demand: U is fixed.
		In the case of a normal good, Marshallian demand curve is always flatter than the compensated demand curve.
		For this reasons, we can compare the elasticities of demand for automobiles in Germany and in Japan, although their demand curves are expressed in terms of mark and yen prices.
	www.econ.iastate.edu /classes/econ301/choi/ch4a.doc (1334 words)

	UCLA; Economics 134; Cameron; Practice Exam Questions (Site not responding. Last check: 2007-10-31)
		Figure 15.5 in Kolstad, reproduced in the lecture notes, derives the Hicksian compensated demand curve associated with a particular indifference curve.
		Since there are an infinite number of indifference curves in the preference function for a given individual, there are an infinite number of Hicksian compensated demand curves.
		Since utility is rising as you move down and to the right along a conventional Marshallian (ordinary) demand curve, we can draw a Hicksian compensated demand curve through any particular point on a Marshallian demand curve, as needed.
	www.sscnet.ucla.edu /ssc/labs/cameron/e134s00/e134px14_ans.htm (301 words)

	Compensated_demand
		Since, to an economist, the real object of individual behaviour is utility maximisation, and since any point on a single indifference curve generates the same utility as any other point, then in utility terms the consumer’s “psychic income” is the same along this curve.
		A demand curve constructed by “holding utility constant” in this fashion isolates the substitution effect, which is necessarily negative–in that a higher price results in a lower level of consumption, and vice versa–and therefore results in a demand curve which necessarily slopes downward in price.
		Economists describe this curve, shown in the lower half of Figure 14, as a “compensated” or “Hicksian” demand curve.
	www.debunking-economics.com /Hedonism/Compensated/index.htm (1197 words)

	Asia Times
		In economics, the effect on consumption of a pure change in price is shown in an income-compensated demand curve (also known as a Hicksian demand curve after economist John Hicks - 1904-89).
		A Marshallian demand curve (after economist Alfred Marshall - 1842-1924) is based on the concept of marginal utility.
		As interest rates are artificially lowered by Fed action to stimulate a slowing economy, banks raise their credit threshold to compensate for the narrowing of rate spread, thus reducing the number of qualified borrowers and shrinking aggregate loan volume.
	www.atimes.com /atimes/global_economy/DI14Dj01.html (7031 words)

	[No title]
		Derive expressions for the Walrasian (ordinary) and Hicksian (compensated) demands for good k.
		Use your answers to part (c) to verify the Slutsky equation for the change in the demand for good k in response to a change in EMBED Equation.DSMT4 .
		Show that the Hicksian demand functions for goods 2, , L do not depend on u, and compare the Hicksian demand functions to the Walrasian demand functions.
	www.bsos.umd.edu /econ/ausubel/problemset-3.doc (291 words)

	compensated - OneLook Dictionary Search
		Tip: Click on the first link on a line below to go directly to a page where "compensated" is defined.
		Phrases that include compensated: compensated alkalosis, chain compensated spirometer, compensated demand curve, compensated metabolic alkalosis, compensated respiratory acidosis, more...
		Words similar to compensated: compensate, remunerated, salaried, stipendiary, more...
	www.onelook.com /?w=compensated (123 words)

	The expenditure function is E = U(p1 + p2) (Site not responding. Last check: 2007-10-31)
		To find the Hicksian demand curve for good 1, apply Shephard’s lemma.
		By Roy’s identity, the Marshallian demand curve is
		e) Explain why the slope of the Marshallian demand curve from part (d) differs from the slope of the Hicksian demand curve found in part (b).
	www.ucc.ie /~sjostrom/ma/guide.htm (916 words)

	Compensated demand curve - Definition from Investor Dictionary - Define meaning of the word Compensated demand curve
		Compensated demand curve - Definition from Investor Dictionary - Define meaning of the word Compensated demand curve
		In economics, the compensated demand curve that shows how the substitution effect influences the number of units of a good the consumer will purchase.
		A Compensated Demand Curve shows how the number of units of a good purchased at a given price changes as the price changes, assuming the consumer's income is increased enough to offset the income effect.
	www.investordictionary.com /definition/compensated+demand+curve.aspx (163 words)

	[No title]
		Demonstrate that the demand is homogeneous of degree zero.
		(Hint: find the demand for x as a function of the tax and notice that the revenues are EMBED Equation.3 ).
		Plot on the same graph the consumer’s budgets in both cases and her choices.
	www.econ.umn.edu /~leoni/3301/HW2.doc (613 words)

	[No title]
		Calculate the equivalent variation and the excess burden of the tax on vine.
		Illustrate your results graphically using (a) compensated demand curve and (b) indifference curve analysis.
		Calculate the equivalent variation and the excess burden of the whiskey subsidy.
	www.bilkent.edu.tr /~zaim/EV.doc (372 words)

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