y

U = v*
x

I/py

dx(px,py,I)

I/px

6.1#6

y
Hicksian demand

U0

I/px3

I/px1

I/px2







All other
goods

7#1

Ucash
I/pA

Ustamps

Food
subsidy

I/pF

Fstamp+I/pF

Food

Graph 53

PF

DWL
DWL

Slope of U1 at F1*

Valuation
of Fmin-F1*
units of
food

U2

Slope of U1 at Fmin

U1
F1* F2*

Fmin

Valuation of Fmin
F1* units of food

F1* Fmin

Indifference Map

Compensated Demand

7#3

p
Willing to sell food stamps
$1
Infinite supply
if p >1

50c

Willing to buy
food stamps
Q

MIT OpenCourseWare
http://ocw.mit.edu

14.03 / 14.003 Microeconomic Theory and Public Policy

Fall 2010

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