Answer to Question #99630 in Microeconomics for Samuel

Question

Differentiate between and explain the ordinary and compensated demand functions;

Answer 1

The ordinary demand function also called the Marshallian demand function, is the function of the price of a commodity, price of corresponding commodity and income of the individual consumer. Whereas the compensated demand function also called the Hicksian demand curve is the function of the price of a commodity, price of the corresponding commodity but instead of income of individual the compensated demand curve is the function of utility that an individual wants to achieve.Another major difference between them is that the ordinary demand curve has both income and substitution effect. And the compensated demand curve has only a substitution effect in the demand curve.