Project #55808 - Economics

 

 

 

 

 

Slutsky equation & limitations to consumption theory

 

 

 

Answer the following questions using this week’s required readings (see last lecture slide) and additional research.

 

 

 

Suggested supplementary readings:

 

Bourdieu, P. 1979. Distinction: A Social Critique of the Judgement of Taste. London:

 

Routledge.

 

Fine, B. and Leopold, E. 1993. The World of Consumption. London: Routledge.

 

Veblen, T. 1889. The Theory of the Leisure Class. New York: Dover.

 

 

 

 

 

1.     1) Calculate the Slutsky income and substitution effect if the consumers utility function is U(c, b) = cb, when their income is 20 and prices move from pb = 1, pc = 2 to pb = pc = 2.

 

a.    Draw the initial budget line and determine the initially optimal consumption bundle.

 

b.    How much would income have to be adjusted to account for the change in price?

 

c.     How large is the substitution effect?

 

d.    How large is the income effect?                                                 [20 marks]

 

 

 

2.   2) Explain the following comment by Steve Keen on microeconomic method: “The ‘strong restrictions’ are that society is populated by a hoard of clones, consuming commodities which are identical to each other” (Keen 2002, p. 47).

 

Which restrictions odes he refer to?                                                    [15 marks]

 

Do you agree with his assessment? Explain why.                             [15 marks]

 

 

 

 

 

3.     3) Are consumers sovereign in their consumption demands (driven by internal preferences) or are their preferences influenced by social interaction? Discuss critically with reference to Veblen’s concept of ‘conspicuous consumption’ and Bourdieu’s theory of ‘Distinction’.

 

 

 

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Due By (Pacific Time) 02/03/2015 04:00 pm
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