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Economic Thought and Practice, Vol. 21 No. 1, 2012.

Original scientific paper

A NOTE ON SHADOW PRICES

Jasminka Šohinger ; University of Zagreb, Zagreb, Croatia
Ilko Vrankić ; University of Zagreb, Zagreb, Croatia

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Abstract

In this paper we examine the method of Lagrange multipliers within the context of
consumer optimal choices. The action of multipliers on constraints in the utility
maximization problem is represented graphically as a multiplied distance
between expenditures and income in the primal, and as a multiplied distance
between total and given utilities in its dual. Based on those graphical
representations we offer new interpretations of the optimal values of Lagrange
multipliers as well as of the consumer's ordinal properties. Comparative statics
results are confirmed analytically and placed within the general framework of
non-linear relationships among variables that are relevant in general equilibrium
analysis.

Keywords

Lagrange multipliers; line of force; line of indifference; equilibrium; concavity and quasi-concavity; comparative static

Hrčak ID:

83759

URI

https://hrcak.srce.hr/83759

Publication date:

29.6.2012.

Article data in other languages: croatian

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