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

Perfect competition, At a market price of $21 a toy, what quantity does the...

At a market price of $21 a toy, what quantity does the firm produce in the short run and does the firm make a positive economic profit, a zero economic profit, or an economic loss?

The great depression, How did fixed exchange rates and the Golden Standard ...

How did fixed exchange rates and the Golden Standard affect the U.S. economy as well as other countries.

What is the adam smith view of invisible hand, What is the Adam smith view ...

What is the Adam smith view of "invisible Hand"?  Invisible hand is an unknown power which is working for the interest of total economy. In any economy, everybody cares for his

Baumol’s sales revenue maximization theory, Profit maximization is theoreti...

Profit maximization is theoretically the most sound but practically unattainable objective of business firms. In the light of this statement critically appraise the Baumol’s sales

Determinants of social demand - economies of scale , Determinants of Social...

Determinants of Social Demand - Economies of Scale The universe of knowledge is highly diverse. There are certain branches of knowledge whose value to human culture and civil

Discuss the short-run cost-output relations, Micro Economics 1. Discuss...

Micro Economics 1. Discuss the short-run cost-output relations. 2. Write a short note on pure competition. 3. Describe excess profit criterion. 4. Discuss the vario

Microeconomics, Five identical people live in a small town and can earn a l...

Five identical people live in a small town and can earn a living either by having cattle $100 or by becoming a singer. If one person competes their expected payment is 210, if two

Volume of trade, Volume of Trade: It relates to the size of internatio...

Volume of Trade: It relates to the size of international transactions. Since a large number of commodities enter in international transactions and their aggregate can be found

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