The Influence of Lexicographic Preference Ordering on Relative Demands Under Alternative Price Ratios--A Graphical Presentation
RAND CORP SANTA MONICA CA
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This paper has examined the effect of relative price changes on the demands for goods or factors of production which are lexicographically ordered in a utility or preference function. Because of this unique ordering, no substitution effects are possible. Moreover, the income effects are constrained and influence the demand for only one good or factor. Finally, it appears possible to observe a relative decrease in the demand for the favored good or factor even though both goods are normal or both factors have positive marginal products.
- Economics and Cost Analysis