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

Short period analysis - theory of production, SHORT PERIOD ANALYSIS: S...

SHORT PERIOD ANALYSIS: Short period in production refers to a time when some inputs remain fixed. A fixed input is one, whose quantity cannot be changed readily, whereas, a va

PERFECT COMPETITION and THE SUPPLY CURVE & MONOPOLY, Chapter 13 / PERFECT C...

Chapter 13 / PERFECT COMPETITION and THE SUPPLY CURVE 1. Joe Brown’s dairy operates in a perfectly competitive marketplace. Joe’s machinery costs $500 per day and is the only fixe

Define Amagat law of partial volume, Define Amagat law of partial volume, ...

Define Amagat law of partial volume, Amagat law of partial volume The total volume of a mixture of non reacting gases at constant temperature & pressure is equal to sum of indiv

Development administration, Development Administration: Since the Gove...

Development Administration: Since the Government has been entrusted to manage economic and business activities, it was found difficult to manage the economic policy with the t

Explain content of factor markets and distribution of income, Explain about...

Explain about the content of factor markets and the distribution of income. Content of factor markets and the distribution of income: a. Factor distribution of income b.

Approach of characterizing modern economic environment, Explain the approac...

Explain the approach of characterizing the modern economic environment. Modern economics gives various perspectives or angles to seem at real world economic issues. An economic

Mangerial Economics, A portion of the demand schedule for wax candles (per ...

A portion of the demand schedule for wax candles (per case) is shown below. Px $50 $30 $10 Qx 500 600 700 What is the demand curve (straight line) that corresponds to the schedu

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