<blockquote>
<p>Is it becaues <span class="math-container">$x_1^*$</span> does not depend on
the income m, we say that &quot;reservation prices are independent of the amount of money the consumer has to spend on other goods&quot;?</p>
</blockquote>
<p>Exactly.</p>
<blockquote>
<p>But why does this allow us to calculate utility in such a
simple way? If Good 1 can be affected by income effect, what will
happen?</p>
</blockquote>
<p>The point of quasilinear utility is that the consumer's decision on how much to buy of <span class="math-container">$x_1$</span> depends on the price <span class="math-container">$p1$</span> <em>only</em>, which simplifies the optimality condition. Eventually, this makes calculating the utility in the optimum also easier. I find the quote a bit strange, though, because one is usually interested in the utility-maximizing choice and not the level of utility associated with this choice.</p>

CC BY-SA 4.0
2023-07-16T08:47:03.540Z
2023-07-16T08:47:03.540Z
E. Sommer
<p>In this section, there are two parts which I do not quite understand.</p>
<p>The first one is</p>
<blockquote>
<p>In general the price at which a consumer is willing to purchase some
amount of good 1 will depend on how much money he has for consuming
other goods. But in the special case of quasilinear utility the reservation prices are independent of the amount of money the consumer has to spend on other goods</p>
</blockquote>
<p>What I understand is that when the utility function is quasilinear, <span class="math-container">$x_1^* = x_1(p_1,p_2)$</span> and <span class="math-container">$x_2^* = x_2(p_2, m)$</span>. <strong>Is it becaues <span class="math-container">$x_1^*$</span> does not depend on the income <span class="math-container">$m$</span>, we say that &quot;reservation prices are independent of the amount of money the consumer has to spend on other goods&quot;?</strong></p>
<p>The second one is</p>
<blockquote>
<p>Economists say that with quasilinear utility there is “no income
effect” since changes in income don’t affect demand. This is what
allows us to calculate utility in such a simple way</p>
</blockquote>
<p>I know that quasilinear utitliy implies that there is no income effect on Good 1. But <strong>why does this allow us to calculate utility in such a simple way? If Good 1 can be affected by income effect, what will happen?</strong></p>

<microeconomics><consumer-surplus>
A question on Intermediate Microeconomics: A Modern Approach 9ed by Hal Varian, Section 14.6 Quasilinear Utility
dchao
# A question on Intermediate Microeconomics: A Modern Approach 9ed by Hal Varian, Section 14.6 Quasilinear Utility

(Asked by: username_0 on 2023-07-14)

In this section, there are two parts which I do not quite understand.

The first one is

> In general the price at which a consumer is willing to purchase some
> amount of good 1 will depend on how much money he has for consuming
> other goods. But in the special case of quasilinear utility the reservation prices are independent of the amount of money the consumer has to spend on other goods

What I understand is that when the utility function is quasilinear, $x\_1^\* = x\_1(p\_1,p\_2)$ and $x\_2^\* = x\_2(p\_2, m)$. **Is it becaues $x\_1^\*$ does not depend on the income $m$, we say that "reservation prices are independent of the amount of money the consumer has to spend on other goods"?**

The second one is

> Economists say that with quasilinear utility there is “no income
> effect” since changes in income don’t affect demand. This is what
> allows us to calculate utility in such a simple way

I know that quasilinear utitliy implies that there is no income effect on Good 1. But **why does this allow us to calculate utility in such a simple way? If Good 1 can be affected by income effect, what will happen?**

**Tags:** microeconomics, consumer-surplus


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## 1 answers

### Answer by username_1 on 2023-07-16. Score: 1 | Accepted answer

> Is it becaues $x\_1^\*$ does not depend on
> the income m, we say that "reservation prices are independent of the amount of money the consumer has to spend on other goods"?

Exactly.

> But why does this allow us to calculate utility in such a
> simple way? If Good 1 can be affected by income effect, what will
> happen?

The point of quasilinear utility is that the consumer's decision on how much to buy of $x\_1$ depends on the price $p1$ *only*, which simplifies the optimality condition. Eventually, this makes calculating the utility in the optimum also easier. I find the quote a bit strange, though, because one is usually interested in the utility-maximizing choice and not the level of utility associated with this choice.


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