Question

In: Economics

Write whether True (T) or False (F) a Indirect utility is homogeneous of degree 1 in...

Write whether True (T) or False (F)

a

Indirect utility is homogeneous of degree 1 in income and prices

b

Roy’s identity is a relation between Marshallian demand and Indirect utility

c

For a normal good the income effect is positive

d

With hicksian demand the income effect is zero

e

In a utility maximisation problem subject to budget constraint, the lagrange multiplier gives the marginal utility of income

f

If f(ax + (1 − a)y) < af(x) + (1−a)f(y), the function is concave

Solutions

Expert Solution

a. False

Indirect Utility is Homogenous with degree zero in prices and income.if prices and income are all multiplied by a given constant the same bundle of consumption represents a maximum, so optimal utility does not change.

b. True

Roy's identity is a major result in ,microeconomics having applications in consumer choice and the theory of the   firm. The lemma relates the ordinary(Marshallian) demand function to the derivatives of the indirect utility function.

c. True

For normal goods, the income effect is positive. Therefore when price of a normal good falls and the result in increase in the purchasing power, income effect will act in the same direction as the substitution effect.

d. True

In microeconomics, a consumer's Hicksian demand correspondence is the demand of a consumer over a bundle of goods that minimizes their expenditure while delivering a fixed level of utility. if the correspondence is actually a function, it is reffered to as the Hicksian demand Function. with Hicksian Demand function the income effect is Zero.

e. True

In utility maximization problem subject to budget constraint, the larange multiplier gives the marginal utility of income.

f. False

if f(ax+(1-a)y) < af(x)+(1-a)f(y) is a strictly convex function

  


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