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Compensating Variation
{{Short description, Economic measure of utility change In economics, compensating variation (CV) is a measure of utility change introduced by John Hicks (1939). 'Compensating variation' refers to the amount of additional money an agent would need to reach their initial utility after a change in prices, a change in product quality, or the introduction of new products. Compensating variation can be used to find the effect of a price change on an agent's net welfare. CV reflects new prices and the old utility level. It is often written using an expenditure function, e(p,u): :CV = e(p_1, u_1) - e(p_1, u_0) : = w_1 - e(p_1, u_0) where w_1 is the new wealth level, p_0 and p_1 are the old and new prices respectively, and u_0 and u_1 are the old and new utility levels respectively. The first equation can be interpreted as saying that, under the new price regime, the consumer would accept a substraction of ''CV'' in exchange for allowing the change to occur. More intuitively, the e ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Economics
Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interactions of Agent (economics), economic agents and how economy, economies work. Microeconomics analyses what is viewed as basic elements within economy, economies, including individual agents and market (economics), markets, their interactions, and the outcomes of interactions. Individual agents may include, for example, households, firms, buyers, and sellers. Macroeconomics analyses economies as systems where production, distribution, consumption, savings, and Expenditure, investment expenditure interact; and the factors of production affecting them, such as: Labour (human activity), labour, Capital (economics), capital, Land (economics), land, and Entrepreneurship, enterprise, inflation, economic growth, and public policies that impact gloss ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
John Hicks
Sir John Richard Hicks (8 April 1904 – 20 May 1989) was a British economist. He is considered one of the most important and influential economists of the twentieth century. The most familiar of his many contributions in the field of economics were his statement of consumer demand theory in microeconomics, and the IS–LM model (1937), which summarised a Keynesian view of macroeconomics. His book '' Value and Capital'' (1939) significantly extended general-equilibrium and value theory. 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. Early life Hicks was born in 1904 in Warwick, England, and was the son of Edward Hicks, editor and part proprietor of the Warwick and Leamington Spa Courier newspaper, and Dorothy Catherine, née Stephens, daughter of a non-conformist minister ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Expenditure Function
In microeconomics, the expenditure function represents the minimum amount of expenditure needed to achieve a given level of utility, given a utility function and the prices of goods. Formally, if there is a utility function u that describes preferences over ''n ''goods, the expenditure function e(p, u^*) is defined as: :e(p, u^*) = \min_ p \cdot x where p is the price vector u^* is the desired utility level, \geq(u^*) = \ is the set of providing at least utility u^*. Expressed equivalently, the individual minimizes expenditure x_1p_1+\dots +x_n p_n subject to the minimal utility constraint that u(x_1, \dots , x_n) \ge u^*, giving optimal quantities to consume of the various goods as x_1^*, \dots x_n^* as function of u^* and the prices; then the expenditure function is :e(p_1, \dots , p_n ; u^*)=p_1 x_1^*+\dots + p_n x_n^*. Properties Suppose u is a continuous utility function representing a locally non-satiated preference relation on \textbf R^n_+. Then e(p, u^*) is # Homo ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Value Function
The value function of an optimization problem gives the value attained by the objective function at a solution, while only depending on the parameters of the problem. In a controlled dynamical system, the value function represents the optimal payoff of the system over the interval , t1/var> when started at the time-t state variable x(t)=x. If the objective function represents some cost that is to be minimized, the value function can be interpreted as the cost to finish the optimal program, and is thus referred to as "cost-to-go function." In an economic context, where the objective function usually represents utility, the value function is conceptually equivalent to the indirect utility function. In a problem of optimal control, the value function is defined as the supremum of the objective function taken over the set of admissible controls. Given (t_, x_) \in , t_\times \mathbb^, a typical optimal control problem is to : \text \quad J(t_, x_; u) = \int_^ I(t,x(t), u(t)) \, \m ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Equivalent Variation
Equivalence or Equivalent may refer to: Arts and entertainment *Album-equivalent unit, a measurement unit in the music industry *Equivalence class (music) *''Equivalent VIII'', or ''The Bricks'', a minimalist sculpture by Carl Andre *'' Equivalents'', a series of photographs of clouds by Alfred Stieglitz Language *Dynamic and formal equivalence in translation *Equivalence (formal languages) Law *The doctrine of equivalents in patent law *The equivalence principle as if impacts on the direct effect of European Union law Logic *Logical equivalence, where two statements are logically equivalent if they have the same logical content * Material equivalence, a relationship where the truth of either one of the connected statements requires the truth of the other Science and technology Chemistry *Equivalent (chemistry) *Equivalence point *Equivalent weight Computing *Turing equivalence (theory of computation), or Turing completeness *Semantic equivalence in computer metadata Econo ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Normal Good
In economics, a normal good is a type of a Good (economics), good which experiences an increase in demand due to an increase in income, unlike inferior goods, for which the opposite is observed. When there is an increase in a person's income, for example due to a wage rise, a good for which the demand rises due to the wage increase, is referred as a normal good. Conversely, the demand for normal goods declines when the income decreases, for example due to a wage decrease or layoffs. Analysis There is a positive correlation between the income and demand for normal goods, that is, the changes income and demand for normal goods moves in the same direction. That is to say, that normal goods have an elastic relationship for the demand of a good with the income of the person consuming the good. In economics, the concept of elasticity, and specifically income elasticity of demand is key to explain the concept of normal goods. Income elasticity of demand measures the magnitude of the c ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Inferior Good
In economics, inferior goods are those goods the demand for which falls with increase in income of the consumer. So, there is an inverse relationship between income of the consumer and the demand for inferior goods. There are many examples of inferior goods, including cheap cars, public transit options, payday lending, and inexpensive food. The shift in consumer demand for an inferior good can be explained by two natural economic phenomena: the substitution effect and the income effect. Description In economics, inferior goods are goods whose demand decreases when consumer income rises (or demand increases when consumer income decreases). This behaviour is unlike the supply and demand behaviour of normal goods, for which the opposite is observed; normal goods are those goods for which the demand rises as consumer income rises. Inferiority, in this sense, is an observable fact relating to affordability rather than a statement about the quality of the good. As a rule, these ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Quasilinear Utility
In economics and consumer theory, quasilinear utility functions are linear in one argument, generally the numeraire. Quasilinear preferences can be represented by the utility function u ( x,y_1,..,y_n ) = x + \theta_1(y_1)+..+\theta_n(y_n) where \theta_i is strictly increasing and concave. A useful property of the quasilinear utility function is that the Marshallian/Walrasian demand for y_1, \ldots, y_n does not depend on wealth and is thus not subject to a wealth effect; The absence of a wealth effect simplifies analysis and makes quasilinear utility functions a common choice for modelling. Furthermore, when utility is quasilinear, compensating variation (CV), equivalent variation (EV), and consumer surplus are algebraically equivalent. In mechanism design, quasilinear utility ensures that agents can compensate each other with side payments. Definition in terms of preferences A preference relation \succsim is quasilinear with respect to commodity 1 (called, in this case, ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Consumer Surplus
In mainstream economics, economic surplus, also known as total welfare or total social welfare or Marshallian surplus (after Alfred Marshall), is either of two related quantities: * Consumer surplus, or consumers' surplus, is the monetary gain obtained by consumers because they are able to purchase a product for a price that is less than the highest price that they would be willing to pay. * Producer surplus, or producers' surplus, is the amount that producers benefit by selling at a market price that is higher than the least that they would be willing to sell for; this is roughly equal to profit (since producers are not normally willing to sell at a loss and are normally indifferent to selling at a break-even price). The sum of consumer and producer surplus is sometimes known as social surplus or total surplus; a decrease in that total from inefficiencies is called deadweight loss. Overview In the mid-19th century, engineer Jules Dupuit first propounded the concept of econ ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
