UCR Budget Constraint and Indirect Utility Problems

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The exam will include one or two multi-part written-answer questions (similar to your practice problems) which you will answer on your own paper and submit your work as a file upload (you can scan your answers or take a photo of it – the important thing is it must be clearly legible and easy for me to read). ┬áThe exam will also contain 10-15 multiple choice /”fill in”/matching type questions. the coverage of the exam will be everything in the course up to Roy’s Identity ┬áThis means the lecture videos in Week 6 and later, covering CV, EV, etc. will not be covered. ?see files?

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5.
If U ( x, y ) ? min( x, y ) , utility maximization requires x ? y . Substitution into the
budget constraint yields x ? I ( p x ? p y ) ? y . Hence,
V ( px , p y .I ) ?
I
,
px ? p y
E ( px , p y , V ) ? ( px ? p y )V .
If U ( x, y ) ? x ? y , utility maximization requires the purchase of whichever of
these two perfect substitutes has the lower price. So, if
p x ? p y , x ? 0, y ? I p y . If p x ? p y , x ? I p x , y ? 0. Given these results,
V ( p x , p y .I ) ?
I
,
min( px , p y )
E ( px , p y , V ) ? min( px , p y )V .
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Tags:
budget constraint

utility function

indirect utility

function theorem

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