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indirect utility function are utility maximization problem (UMP) and expenditure minimization problem (EMP). The UMP considers a consumer who wants to gain the maximum utility given wealth w. The EMP considers a consumer who wants to find a cheapest way to reach a certain level of utility. In both EMP and UMP consumers are assumed to have locally nonsatiated preferences.
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in the market. This means that prices are such that demand is equivalent to the supply for each good. Consumers trying to maximize their utility and producers trying to maximize their profit are satisfied with what they are getting. Competitive equilibrium may fail to exist if consumers are satiated,
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The indirect utility function is a function of commodity prices and the consumer's income or budget. Indirect utility function v(p, w) where p is a vector of commodity prices, and w is an amount of income. Important assumption is that consumers have locally nonsatiated preferences. Related to the
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Local nonsatiation is a key assumption in the Walras’ law theorem. Walras's law says that if consumers have locally nonsatiated preferences, they will consume their entire budget over their lifetime.
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is on a section of a bounded consumption set sufficiently far away from the ends. Near the ends of a bounded set, there would necessarily be a bliss point where local nonsatiation does not hold.
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The first fundamental theorem of welfare economics states that any competitive equilibrium in a market, where consumers are locally nonsatiated is
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of goods there is always another bundle of goods arbitrarily close that is strictly preferred to it.
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An indifference curve is a set of all commodity bundles providing consumers with the same level of
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contain more of any good – hence, some goods can be "bads" and preferences can be non-monotone.
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Illustration of preferences that are locally nonsatiated but not strongly monotonic.
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Local nonsatiation can only occur either if the consumption set is
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https://web.stanford.edu/~jdlevin/Econ%20202/Consumer%20Theory.pdf
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Advanced
Microeconomic Theory: An Intuitive Approach with Examples
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The
Slutsky equation describes the relationship between the
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Market is at competitive equilibrium if there are no
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It rules out the extreme case where all goods are "
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449:Kaliszyk, Cezary; Parsert, Julian (2018).
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Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.
