Economics • Economic BasicsHard
In microeconomic theory, what does the 'Hicksian Demand Function' isolate as the sole determinant of quantity demanded, holding utility constant?
A. Nominal price and nominal income
B. Relative prices and target utility level✓ Correct Answer
C. Nominal price and consumer wealth
D. Market demand and elasticity
💡 Solution & Explanation
The Hicksian demand function isolates the substitution effect of a price change by holding utility constant and varying relative prices. Unlike Marshallian demand, which allows real income to vary with price changes, Hicksian demand compensates the consumer to maintain a constant target utility level. Hicksian demand curves are always downward sloping due to the negative substitution effect.
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