What actually is Hicksian demand function and why is it different from regular demand curve?
In: 5
Imagine you buy some amount of ice cream sandwiches at their current price. You buy other things too with whatever money you have left over after buying ice cream sandwiches.
One day at the grocery store you see a worker making the sandwiches cheaper, which is good for you as it means you can buy more of them! In fact everything in the grocery store has gone down in price. However as you check your bank account you realize that you didn’t make as much money this month as you did last month. You still want to buy more ice cream sandwiches as you love eating them, but not as many as you would have if only they had gone down in price.
This is the difference between hicksian and “normal”(Marshallian) demand curves. Marshallian demand curves are like when only the ice cream sandwiches are on sale, where as Hicksian demand curves show how many sandwiches you would buy if everything was changing in price like the ice cream sandwiches.
Latest Answers