Question

I am providing a 25 x 25 grid that you can use to draw your graphs if you do not have graph paper. It is important to scale your graphs properly. You may also measure the distance on plain paper if that works better for you.

True or false: Prices should never enter into the numerator of a simplified indirect utility function. Explain.

Answer 1

Ans.

for a good X, normal good, An indirect utility function is the function of own price, price of related good and income.

But in normal case, as we say if price increases demand for good decrease and vice versa.

So in an indirect utility function of a good X., price of own good never come in numerator, it is always in denominator. But price of other good can be in numerator. And income is always on numerator.

Note: Here in this question only prices are written, it is not mentioned which prices. Price of own good or related good. So i explained both the cases.