Y is a substitute for X if the marginal rate of substitution of Y for money is diminished when X is substituted for money in such a way as to leave the consumer no better off than before.Similarly, Y is complementary with X if the above substitution of X for money results in an increase in the marginal rate of substitution of Y for money. Hicks motivates the specific nature of the reduction of money in the substitution of X by noting that the definition of a substitute good should make it "absolutely certain that an extra unit of the same physical commodity is a substitute for preceding units." And we can only be certain of this when the extra unit of X is substituted for money in a way that leaves the consumer no better off than before; then the result is guaranteed by the principle of diminishing marginal rate of substitution.
As Hicks notes, the resulting definition is free from any dependence on a quantitative measure of utility. In addition, the symmetry properties described in the previous section hold (namely, if Y is a substitute for X, then X is a substitute for Y, and similarly for complements). Also this definition reduces to the Edgeworth-Pareto definition if the marginal utility of money is assumed constant, while being directly applicable in cases where the assumption does not hold.
No comments:
Post a Comment