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U = v*
y
x
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dx(px,py,I)
I/py
I/px
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6.1#6
y
U0
Hicksian demand
I/px3 I/px2 I/px1 x
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All other 7#1
goods
I/pA
Ucash
Ustamps
I/pF Fstamp+I/pF Food
Food
subsidy
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Graph 53
A PF
DWL
DWL
F
U1
U2
F2*F1
* Fmin
Slope of U1 at F1*
Valuation
of FminF1*
Slope of U1 at Fminunits of
food Valuation of Fmin-
F1* units of food
F1* Fmin
FIndifference Map Compensated Demand
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p
$1
50c
7#3
Willing to sell food stamps
Infinite supply
if p >1
Willing to buyfood stamps
Q
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MIT OpenCourseWarehttp://ocw.mit.edu
14.03 / 14.003 Microeconomic Theory and Public Policy
Fall 2010
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