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Homework answers / question archive / At the intersection of a Marshallian demand curve and the corresponding Hicksian demand curve, the Marshallian demand is always more elastic with respect to the own price than the Hicksian demand, since Marshallian demand depends on income effects
At the intersection of a Marshallian demand curve and the corresponding Hicksian demand curve, the Marshallian demand is always more elastic with respect to the own price than the Hicksian demand, since Marshallian demand depends on income effects. Is this statement True, False, or Uncertain?
The Marshallian demand curve shows the relationship between quantities demanded of a good at different prices. Hicksian demand curve also tells us the quantity demanded by a consumer at different prices assuming that the price of all other goods and utility remains constant. Marshallian and Hicksian demand curves intersect where the quantity demanded is the same in both the cases of utility maximization and cost minimization.
The Marshallian demand curve is a function of prices and income and the Hicksian demand curve is a function of prices and utility. The Marshallian demand curve shows both substitution and income effect however, the Hicksian demand curve shows only substitution effect.
Thus, the Marshallian demand curve is more elastic than the Hicksian demand curve as changes in quantity demanded in the Marshallian demand curve arise from both income and substitution effect, however, in the case of Hicksian demand curve change occurs only because of the substitution effect.
