-1
$\begingroup$

I have a CES utility function, in my class notes I have remark that when the CES is constant and less than one the demand in absolute terms remains unchanged when price of second commodity changes.

However, once I solve the lagrangian and derive demand I find that $$\partial D(p_1,p_2,I)/\partial p_2 <0$$ which implies that the demand should decrease when price of good 2 increases.

Did I made a mistake in my lecture notes or am I missing something? Thanks in advance for any insight

$\endgroup$

Your Answer

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Browse other questions tagged or ask your own question.