Answer to Question #228705 in Microeconomics for Vicky

Question

distinguish between ordinary and compensated demand functions

Answer 1

Here, demand can be differentiated into compensated and ordinary demand curves. 

• Compensated demand curve describes the demand for which a consumer is income compensated for any change in price. It shows the number of goods that will be demanded by a consumer when his income is compensated with any change in the price of the good. In simple words, the compensated demand curve measures how much quantity of goods a consumer will substitute for another good if there is a change in the price of the first good, without taking income into consideration. 
• The ordinary demand function is also known as the Marshallian demand function. This demand function describes the change in the quantity of goods demanded by a consumer when there is a change in the price of the good, given the consumer is operating on a fixed income. As a result of a price rise, the number of units that the consumer can demand will decrease and in this instance, he may substitute one good for another as a result of the price rise.