where n is the number of varieties produced, mi consumption of each variety and ρ a
parameter representing the intensity of the “love for variety” in the manufacturing sector. The
constant elasticity of substitution between any two varieties is σ ≡ 1/ (1 - ρ), (σ >1).
The consumers maximize (1) subject to the following budget constraint:
n
PAA + Σ mP = Y
1
where Y is income and Pa, Pi respectively the prices of the homogeneous product and prices
for each variety of the manufacturing aggregate.
A two stage budgeting procedure can be applied. The first step in the consumer’s problem is
to choose each mi in order to minimise the cost of attaining a given M:
σ
n
÷ σ-1
∑ m σ
σ-1
min ∑ pimi s.t. M =
1
-1/σ
-, p- , l,
=τπ- = — therefore
j-σ Pj
m m m .....mi
the first-order conditions. imply —-
mj
( P-
t p
mj
and by substitution of this last equation in the budget constraint we obtain:
n n
∑p
ʌɪ-ɑ
σ-1
mj ~σ~
σ
σ-1
which implies:
10
More intriguing information
1. Økonomisk teorihistorie - Overflødig information eller brugbar ballast?2. Automatic Dream Sentiment Analysis
3. Brauchen wir ein Konjunkturprogramm?: Kommentar
4. Tariff Escalation and Invasive Species Risk
5. Inflation Targeting and Nonlinear Policy Rules: The Case of Asymmetric Preferences (new title: The Fed's monetary policy rule and U.S. inflation: The case of asymmetric preferences)
6. Large Scale Studies in den deutschen Sozialwissenschaften:Stand und Perspektiven. Bericht über einen Workshop der Deutschen Forschungsgemeinschaft
7. Moi individuel et moi cosmique Dans la pensee de Romain Rolland
8. An Intertemporal Benchmark Model for Turkey’s Current Account
9. The name is absent
10. The name is absent