Economics 2010a Fa2003 Edward L. Glaeser Lecture 3
Economics 2010a Fall 2003 Edward L. Glaeser Lecture 3
3. Comparative Statics a. Indirect Utility Functions b. Expenditure Functions and duality C. Expenditure Function and Price Indices d. Slutsky via Utility Functions e. Slutsky via Preferences
3. Comparative Statics a. Indirect Utility Functions b. Expenditure Functions and Duality c. Expenditure Function and Price Indices d. Slutsky via Utility Functions e. Slutsky via Preferences
f. Composite Commodity Theorem g. Application: Labor Supply
f. Composite Commodity Theorem g. Application: Labor Supply
Indirect Utility Functions ndirect Utility functions represent the level of utility as a function of prices and wages and we write v(p, w) It is useful many times, to have utility solely as a function of "exogenous" parameters Define the indirect utility function as v(p, w)=u(x(p, w)) where x(p, w) is the Marshallian demand function which solves the consumers problem to maximize u(x)subject to ≥p·x
Indirect Utility Functions Indirect Utility functions represent the level of utility as a function of prices and wages, and we write vp,w. It is useful many times, to have utility solely as a function of "exogenous" parameters. Define the indirect utility function as vp,w uxp,w where xp,w is the Marshallian demand function, which solves the consumers problem to maximize ux subject to w p x
As an aside, remember that utility or indirect utility units have no meaning. The same preferences are u(x)andf(u(x))if f() is a strictly monotonic function
As an aside, remember that utility or indirect utility units have no meaning. The same preferences are ux and fux if f. is a strictly monotonic function