Utility-expenditure duality, Microeconomics

Assignment Help:

Utility-Expenditure Duality:

Consider the minimisation of the  expenditures necessary to achieve a specified utility level. The solution for qi yields the compensated demand functions. If the solutions for qi are substituted in 491_Utility-Expenditure Duality.png one obtains the expenditure function E (p1,...,pn,U0), which gives the minimum expenditure necessary to achieve a given utility level. It is easy to show that E is homogeneous of degree one in prices and monotonically increasing in U0. It can also be shown that the expenditure function corresponding to a regular strictly quassi-concave utility function admitting no satiation is concave in prices. Finally, Shephard's lemma states  that the partial derivative of E with respect to the ith price is the ith compensated demand function. This can be shown as follows:   

1329_Utility-Expenditure Duality1.png

But the compensated demands are obtained by minimising expenditures for a given utility level U0; hence the change in total expenditures that is due to a small change in a price is zero. It follows that the second term above is zero and 

1028_Utility-Expenditure Duality2.png

The duality between utility and expenditure functions is formally identical to the duality between production and cost functions.


Related Discussions:- Utility-expenditure duality

Endowendowment, How to solve questions of endowments?

How to solve questions of endowments?

Explain perfect competition according to economics theory, Explain about th...

Explain about the perfect competition according to economics theory. The procedure of testing and refining theories is the key to the development of modern economics like a sci

Economics and potlatch, I have 3 questions regarding the economics of potla...

I have 3 questions regarding the economics of potlatch, 1.) What is the economic purpose of potlatch? I don''t fully understand this question... I believe potlatch is a gift econ

., what total cost function yields a U-shaped average total cost function

what total cost function yields a U-shaped average total cost function

Demand Forecasting, what is demand forecasting and defines its techniques

what is demand forecasting and defines its techniques

Essentials of development administration for economics, Essentials of Devel...

Essentials of Development Administration  Development administration, to be effective and efficient, needs to have the following ingredients:  Administrative Innovation:

Production possibility curve, construct your own version of a production po...

construct your own version of a production possibility curve and use it to explain scarcity, opportunity cost and choice

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd