# Tag Info

## Hot answers tagged elasticity-of-substituion

7

For the 2x2 case being considered, write $$\mathbf{B}=\left[\begin{array}{cc} b_{1,1} & b_{1,2}\\ b_{2,1} & b_{2,2} \end{array}\right].\quad$$ It follows that the element (1,1) in $B^{-1}$ is given by $\frac{b_{2,2}}{b_{1,1}b_{2,2}-b_{1,2}b_{2,1}}$. Notice that $$\frac{\partial q_1(p_1,p_2)}{\partial p_1}=(\frac{\partial p_1(q_1,q_2)}{\partial q_1 }... 5 Reason: Both goods cannot be inferior. Let's say originally you consume x and y. So your budget constraint looks like$$p_x x + p_y y = I.$$If both X and Y are inferior, when income goes down from I_0 to I', the quantity demanded for both has to go up (by definition) from x to x' and y to y'. This implies$$p_x x' + p_y y' = I' < I = ...

1

Neglecting technology parameters and assuming constant returns to scale, the parameters $\sigma$ and $\gamma$ are jointly estimable via dynamic (least squares) programming. See this paper.

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