We know that n differentiable functions x₁(p, m), ..., xn(p,m) of prices and income are generated by some utility maximizing consumer if and only if each of them is homogeneous of degree zero in prices and income, i.e. Σ¿pi xi(p, m)=m, and whose matrix of substitution terms (the Slutsky matrix) is negative semi-definite. This makes Afriat's Theorem and GARP unnecessary Comment.

We know that n differentiable functions x₁(p, m), ..., xn(p,m) of prices and income are generated by some utility maximizing consumer if and only if each of them is homogeneous of degree zero in prices and income, i.e. Σ¿pi xi(p, m)=m, and whose matrix of substitution terms (the Slutsky matrix) is negative semi-definite. This makes Afriat's Theorem and GARP unnecessary Comment.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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