Munich Personal RePEc Archive

The Substitution Effect and the Profit Function in Consumption: expressions from the Marshallian, Hicksian, and Frischian demand functions

Gimenez-Nadal, Jose Ignacio and Molina, Jose Alberto (2017): The Substitution Effect and the Profit Function in Consumption: expressions from the Marshallian, Hicksian, and Frischian demand functions.

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Abstract

In the context of the maximizing behaviour assumption (Becker, 1976), an individual usually maximizes the utility function, minimizes the cost or, finally, can also maximizes the profit function in consumption, with each of these three optimization problems providing a type of demand function: the Marshallian, the Hicksian, and the Frischian. In all three cases, an important concept for both theoretical and empirical reasons is the Substitution Effect (SE), with this measuring the substitution phenomenon in the demanded quantity in function of the price change. In this context, our short paper offers certain alternative theoretical expressions of the Substitution Effect, focusing on the Profit Function in Consumption, thus introducing the inter-temporal context with perfect information.

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