ERIC Number: EJ704793
Record Type: Journal
Publication Date: 2004-Jun-22
Reference Count: 14
Illustrating Consumer Theory with the CES Utility Function
Tohamy, Soumaya M.; Mixon, J. Wilson, Jr.
Journal of Economic Education, v35 n3 p251 Sum 2004
The authors use Microsoft Excel to derive compensated and uncompensated demand curves. They use a constant elasticity of substitution (CES) utility function to show how changes in a good's price or income affect the quantities demanded of that good and of the other composite good, using Excel's Solver. They provide three contributions. First, they provide an explicit connection between the form of the utility function and the graphical presentation of the indifference curves, budget constraints, and demand curves. Second, they make available a hands-on method of connecting utility functions to demand curves. Third, by relaxing the common Cobb-Douglas formulation, they allow a price-consumption curve (price-expansion path) that is not horizontal (alternatively, an uncompensated demand curve with nonunitary elasticity).
Descriptors: Teaching Methods, Spreadsheets, Macroeconomics, Economics Education, Income, Budgets, Supply and Demand, Economic Factors
Heldref Publications, Helen Dwight Reid Educational Foundation, 1319 Eighteenth Street, NW, Washington, DC 20036-1802. Web site: http://www.heldref.org.
Publication Type: Journal Articles; Reports - Research
Education Level: N/A
Authoring Institution: N/A