An indirect utility function is, among other properties, zero-degree homogeneous in the prices and nominal income. That is, if you scale up each price and nominal income in the same positive proportion t, indirect utility remains unchanged. Explain why this is true. (Hint: real income remains constant).
Now demonstrate this property with the Cobb-Douglas individual's indirect utility function.© BrainMass Inc. brainmass.com November 24, 2021, 3:42 pm ad1c9bdddf
An indirect utility function is a utility function where each price and income are mapped to a most preferred bundle (through utility maximization) and then to that bundle's utility. Now the most preferred bundle is really just a list of proportions of the available ...
An indirect utility function is featured in this solution.