Producer Price Index Manual: Theory and Practice ... - METAC

Producer Price Index Manual
Figure 21.1. Consumption and Production Decisions for Combinations of Characteristics
B.2 Consumer or demand side
21.13 Figure 8.1 in Triplett (1987, p. 634) presents
a simplified version of the characteristic
space between two characteristics. The hedonic
surfaces p 1 and p 2 in that figure trace out all the
combinations of the two characteristics z 1 and z 2
that can be purchased at prices p 1 and p 2 . An indifference
curve q j * maps the combinations of z 1 and
z 2 that the consumer is indifferent against purchasing;
that is, the consumer will derive the same utility
from any point on the curve. The tangency of
q j * with p 1 at A is the solution to the utilitymaximization
problem for a given budget (price
p 1 ) and tastes (reflected in q j *).
21.14 The slope of the hedonic surface is the
marginal cost of acquiring the combination of
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