Independent goods: Difference between revisions
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Adding short description: "Goods that are neither complements nor substitutes" |
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{{Short description|Goods that are neither complements nor substitutes}} |
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{{Unreferenced|date=May 2007}} |
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{{Refimprove|date=July 2016}} |
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[[Image:Cross elasticity of demand independent.svg|thumb|upright|200px|Two goods that are independent have a zero cross price elasticity of demand : as the price of good Y rises, the demand for good X stays constant]] |
[[Image:Cross elasticity of demand independent.svg|thumb|upright|200px|Two goods that are independent have a zero cross price elasticity of demand : as the price of good Y rises, the demand for good X stays constant]] |
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'''Independent goods''' are [[Good (economics)|goods]] that have a zero [[cross elasticity of demand]]. Changes in the price of one good will have no effect on the [[Demand (economics)|demand]] |
'''Independent goods''' are [[Good (economics)|goods]] that have a zero [[cross elasticity of demand]]. Changes in the price of one good will have no effect on the [[Demand (economics)|demand]] for an independent good. Thus independent goods are neither [[complementary goods|complements]] nor [[substitute good|substitutes]]. |
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For example, a person's demand for nails is usually independent of his or her demand for bread, since they are two unrelated types of goods. Note that this concept is subjective and depends on the consumer's personal [[utility function]]. |
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A [[Cobb-Douglas|Cobb-Douglas utility function]] implies that goods are independent. For goods in quantities ''X''<sub>1</sub> and ''X''<sub>2</sub>, prices ''p''<sub>1</sub> and ''p''<sub>2</sub>, income ''m'', and utility function parameter ''a'', the utility function |
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:<math> u(X_1, X_2) = X_1^a X_2^{(1-a)},</math> |
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when optimized subject to the budget constraint that expenditure on the two goods cannot exceed income, gives rise to this demand function for good 1:<ref name=HRV>{{cite book|last=R Varian|first=Hal|title=Intermediate Microeconomics : A modern approach 7th Edition |year=2006|publisher=W.W. Norton & Co|isbn=0-393-92702-4|pages=754}}</ref> <math>X_1= am/p_1,</math> which does not depend on ''p''<sub>2</sub>. |
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{{-}} |
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==See also== |
==See also== |
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* [[Consumer theory]] |
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* [[Good (economics and accounting)]] |
* [[Good (economics and accounting)]] |
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==References== |
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{{reflist}} |
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{{Goodtypes}} |
{{Goodtypes}} |
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[[Category:Goods]] |
[[Category:Goods (economics)]] |
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[[Category:Utility function types]] |
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Latest revision as of 01:03, 31 May 2023
 | This article needs additional citations for verification. (July 2016) |
Independent goods are goods that have a zero cross elasticity of demand. Changes in the price of one good will have no effect on the demand for an independent good. Thus independent goods are neither complements nor substitutes.
For example, a person's demand for nails is usually independent of his or her demand for bread, since they are two unrelated types of goods. Note that this concept is subjective and depends on the consumer's personal utility function.
A Cobb-Douglas utility function implies that goods are independent. For goods in quantities X1 and X2, prices p1 and p2, income m, and utility function parameter a, the utility function
when optimized subject to the budget constraint that expenditure on the two goods cannot exceed income, gives rise to this demand function for good 1:[1] which does not depend on p2.
See also
[edit]References
[edit]- ^ R Varian, Hal (2006). Intermediate Microeconomics : A modern approach 7th Edition. W.W. Norton & Co. p. 754. ISBN 0-393-92702-4.
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