App2_IndirectUtilityFunctionExamples.pdf

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Axioms of consumer preference

Primal Dual

Min pxx+ pyy s.t. U(x,y) > U

Indirect Utility function U*= V(px, py, I)

Expenditure function E*= E(px, py, U)

Max U(x,y ) s.t . pxx+ pyy < I

Marshallian demand X = dx(px, py, I) =

(by Ro y ’s identity)

Hicksian demand X = hx(px, py, U) =

(by Shepard ’s lemma)

Slutsky equation IV

pV x ∂∂

∂∂− /

/

xp E

∂ ∂

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10 I = 500

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py= 50

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Graph 40

U0 U1

U2

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III II

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Gift Good (G)

Gift-Giving and Deadweight Loss

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Image by MIT OpenCourseWare.

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14.03 / 14.003 Microeconomic Theory and Public Policy Fall 2010

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App2_IndirectUtilityFunctionExamples.pdf