AN INFERIOR GOOD AND A NOVEL INDIFFERENCE MAP

by A. L. Persky*
It happens sometimes that an example con
structed for one purpose also serves other and

even more interesting ones. An instance of

this is found in (2). To illustrate a utility
function associated with an inferior good,

Liebhafsky introduces the formula1

x\

U =f(Xu X2) = Axl0geXx + y. (1)

This utility function also generates a novel
indifference map with indifference curves
that change from concave to convex, a corner

solution, a double solution, and non-sym

metric cross-price effects. The object of this

note is to complement Liebhafsky's paper by
showing that his utility function generates
these results.
In the first place, /'s indifference curves are

concave for all x2 < 4AX, and convex for all

x2 > yfX\. To see this, note that for any fixed
U0 we have U0 = Axlogexx + x%/2. Thus xx =
\/AxU0 -l/Atxl/2 .

e e = CUo (x2) where CUo is the

indifference curve for utility ?/0. Therefore

and

C'Uo(x2) = -^(^2) e^~\

Cblx2) = eb* j-f^ rt - l) (2)

Clearly C(j0 (x2) is negative (positive, zero) as

x2 is less than (greater than, equal) the square

root of Ax. In other words, for any

x2 < 4XX, /'s indifference curves are shaped

like production possibilities curves, and for
any x2 > Va[9 /'s indifference curves have
the usual convex shape (See Figure 1.)
Figure 1 suggests the following question.
Suppose the usual first order conditions are
satisfied by (xf, x2). Does (xf, x2) generate
maximum2 utility? The answer is obviously
no if x* < vC?7, but what if x* > V^T? In this

case (xt, x2) does not necessarily generate

maximum utility. Utility can be greater at the

left corner than at the point satisfying the first

order conditions, and the utilities of these two

points can be the same, generating a double

solution (see Figure 2). Finally, utility can be

uniquely maximized at the interior solution.

To see all this, it is useful to derive the

interior solution:3

xt = ^ (/ " V/2 - 4Axpl\

xt = -j- (/ + V/2 - 4Axpl). (3)
The interior solution is imaginary4 if and only

if / < 2(\fA~x)p2 and x2 < Jax. In such cases,

maximum utility is generated by the left cor

ner solution Xx = I/pu *2 = 0.5 To compare

the utilities of the interior and corner solu
tions, consider their difference G(I, px, p2) =

f(x*, x2*) - f(I/px, 0). If / = 2(yfAx)p2 and

x2 = JAx, then G(I, pu p2) = Ax\ogeI Ax\og?2px) + ViAx - Axlogel + ^ilog^i =

A\(l/2 ? lo&2) < 0 since log^2 is approximately

.6931. In other words, if / = 2{^Ax)Pi then

utility is more at the corner than at the inte

rior solution. Furthermore, G is continuous
for all /> 2(\TAx)p2, and G is continuous from
the right for / = 2(4Ax)p2. Therefore, in some
cases where I> 2(\fAx)Pi, the interior solution

also fails to generate maximum utility. To

construct such cases, note that for all / >
2(JAx)p2, G(I, px, p2) can be replaced6 by

H(I/p2) = Axlogep2 - logXx2*) + te*)2/2 ^,log,/, and H'(I/p2) > 0 for all /> 2{sfAx)p2.

This implies that the occurrence of the corner

solution is independent of relative prices per
se and depends only on the ratio of the price

of the normal good to income, a surprising

result I will attempt to illustrate below. The

corner solution generates maximum utility

for all x2< 1.5 -JAX and all I/p2 < 2.2 Va{.

* Assistant Professor of Economics, Southern University in New Orleans.

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bus then the consumer's purchases of good 2

do not change. Curiously, in standard ter

minology8 good 1 and good 2 are still called
substitutes. The term is applied when both
compensated cross-price effects are positive
and its application does not require the un
compensated cross-price effects to be sym

metric.

To repeat, the occurrence of a corner so

lution depends only on the ratio of the price

of the normal good to income and is inde

pendent of relative prices per se. In particular,

if income is sufficiently large?at least 2.3

1 1 ^^cUl<x2)

(yfAx)Pi?then the consumer always pur

chases a positive amount of the normal good.

In this case there is never a corner solution

where only the inferior good is purchased,

x2=VA7 X2

FIGURE 1

and in fact purchases of the normal good

never approximate zero. How is this to be
explained? The following example is instruc
tive though not definitive. Suppose a con
sumer divides his income between potatoes
and meat, and his consumption of both of

(-r.O)L.

these goods is closely related to his sensations

of hunger. Assume at given prices, his income
will purchase enough meat to limit his hunger

to a level he does not find severe ? I > 2.3

(yfA~x)P2 where A\ is physiologically deter

mined. Then he may as well sacrifice a large

quantity of potatoes to enjoy one twelve

ounce steak each week since he does not
consider the hunger he will experience the

FIGURE 2
Also by computation, the interior solution
generates maximum utility for all x2 > 1.75

VU and all I/p2 > 2.3 vCiT. It follows

that since H is continuous, there is an (//

Pz)** in [2.2 y/A~u 2.3 VZj and an a?* in

[1.50 Vli, 1.75 n/^] such that //[(///?2)**] =

0. In other words, there is a double solution.7
The consumer is indifferent between spend
ing his entire income on good 1 and purchas
ing an interior combination containing more
than 1.5 (Ja~i) units of good 2.

The interior solution has two unusual fea

tures worth noting. Good 1 is inferior, and

the cross-price effects are not symmetric. If

p2 rises ceteris paribus then the consumer

buys more good 1, but if p\ rises ceteris pari

x2

rest of the time to be severe. If instead he tries

to economize by eating only potatoes, then

he finds that the additional relief from hunger
obtained by the large extra quantity of pota
toes is not adequate compensation for the lost
enjoyment of the steak.

Summary
If / < 2.2 (y/A~x)P2 then px does not matter.

The consumer spends all his money on good

1. At a certain critical income/price of good

2 ratio, there is a double solution. The con

sumer is indifferent between spending all his
money on good 1 and purchasing an interior
combination with more than (1.5) 4XX units
of good 2. If/ > 2.3(V^,)/?2 then the interior
solution applies. In general, if the consumer
buys any good 2 at all, then he buys more

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than 1.5(Ja~\) units of good 2. This can be

explained if we interpret the goods as food
items and assume that at any given prices

into a non-additive one that preserves the

original preference relation.

there is a corresponding income sufficient to

Notes

vere. In such cases he prefers the enjoyment

of one good meal to a greater overall relief of

1. I use Liebhafsky's notation as explained on his page

931. The x's are quantities of goods, Ax is a positive
constant, and when introduced, / and the /?'s will
denote income and prices.

course.

2. Throughout this paper, maximum means global

keep the consumer's hunger from being se

hunger and always consumes the one good

meal. This interpretation is not definitive of

maximum.

In the case of the interior solution, the

cross-price effects are not symmetric and3. To find x*, write the first order condition and use

good 1 is inferior. It would be interesting to

analyze a strictly conventional utility func

tion?one with positive marginal utilities and

convex indifference curves?that generates

the budget equation to eliminate xx. Then multiply

by x2 and reach a quadratic equation. The "/-" root
can be dismissed, yielding the expression above.
The expression for x* is obtained analogously after
noting that x* is inversely related to x*.

an inferior good. The construction of such a4. Liebhafsky does not mention any restrictions on /
formula is left for further study.

Appendix
Liebhafsky makes one outright error, and

the correction is instructive. He states on page

931: "This specific (additive) utility function

can be subjected to a monotonic transfor

mation by squaring it. ..." This idea is also
stated twice on page 934; however, g(U)= U2
is not a monotonic transformation of U. To

see this, let a = (1/2*, JlAx) and b =

(1/3*, yfTAx). Then/(a) = -v4,lofc(2) = Ua,

and/(6) = -Ax\o%J^) = Uh. Therefore Ua >
Ut. But g(Ua) = A2x(lo&{2))2 < A2x(\og?3))2 =
g(JJb\ hence g(Ua) < g(Ub), and g is not a
monotonic transformation of U.
The difficulty, of course, is that/sometimes
generates negative utilities. This problem can

be overcome by using the transformation

hx(U) = eu or h2(U) = Vi + ((i) arctan U). hx
and h2 convert any additive utility function

and /?2, creating the false impression that the inte

rior solution always generates maximum utility.
5. As a technicality,/is not defined for xx = 0, hence
the right corner solution cannot be compared with
the left one. This gap can be filled by using the
utility function h(U) = eu. Clearly h represents the
same preferences as / at all points for which / is
defined, and h is more at the left corner than at the
right, justifying the statement about maximum util
ity.

6. Note that jcf = (p2/Pi)Ax(x*)~l.

7. For any positive Ax, there is a unique double solu
tion. This follows from the fact that H'(I/p2) > 0.

8. See(l,p. 162).

References
1. Intriligator, Michael D., "Mathematical Optimiza

tion and Economic Theory," Prentice Hall, Inc.,

1971.

2. Liebhafsky, H. H., "New Thoughts About Inferior

Goods," American Economic Review, December

1969,49,931-934.

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