BENCHMARK TWO‐GOOD UTILITY FUNCTIONS*

Kris De Jaegher

Manchester School, 2008, vol. 76, issue 1, 44-65

Abstract: Benchmark two‐good utility functions involving a good with zero income elasticity and unit income elasticity are familiar. In this paper we derive utility functions for the additional benchmark cases where one good has zero cross‐price elasticity, unit own‐price elasticity and zero own‐price elasticity. It is shown how each of these utility functions arises from a simple graphical construction based on a single given indifference curve. Also, it is shown that possessors of such utility functions may be seen as thinking in a particular sense of their utility, and may be seen as using simple rules of thumb to determine their demand.

Date: 2008
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https://doi.org/10.1111/j.1467-9957.2007.01049.x

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