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

Oppurtunity cost, 1. Assume that Malaysia can produce cencaluk at 25 bottle...

1. Assume that Malaysia can produce cencaluk at 25 bottles per worker and belacan at RM5 per worker. Assume that Indonesia can produce 10 bottles of cencaluk per worker and 20 pack

Supply and demand, Suppose scientists discover that eating soybeans prevent...

Suppose scientists discover that eating soybeans prevents cancer and heart disease. What effect would you predict on the price of soybeans?

Assignment, Illustrate and discuss the impliction of various market structu...

Illustrate and discuss the impliction of various market structures(competitive and non-competitive)

Case study, Is Indian companies running a risk by not giving attention to c...

Is Indian companies running a risk by not giving attention to cost cutting?

Economic Growth, How do we measure economic growth and why do we need econo...

How do we measure economic growth and why do we need economic growth? (ii) What can governments do to stimulate economic growth and create jobs? (provide some current examples) (ii

Concept of elasticity of demand, Question (a) Describe clearly the thre...

Question (a) Describe clearly the three concepts of elasticity of demand. Use appropriate examples and diagrams to support your answer. (b) Consider you have been appointed

Economic concepts, Term Paper: A final paper that focuses on the course con...

Term Paper: A final paper that focuses on the course content, applied in the setting of your current or past employer, will be due in Module. In this paper you will focus on the fo

Inflation-unemployment trade-off under adaptive expectations, Inflation-Une...

Inflation-Unemployment Trade-off under Adaptive Expectations : By the late 1960s, the inverse relation between inflation and unemployment as suggested by the Phillips curve was

Price mechanism, discuss the term of price mechanism,give examples to elabo...

discuss the term of price mechanism,give examples to elaborate the concept clearly

Determine the action keep the price above market equilibrium, What actions ...

What actions could a government take in order to keep the price above market equilibrium? There are four basic possibilities here; 1) Minimum price;  2) A tax on the good

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