Professional paper

THE ENVELOPE THEOREM IN CONSUMER THEORY

Ilko Vrankić
Jelena Vrbetić

Abstract

In this paper we consider the constrained optimization in the context of efficient distribution of income and derive the Marshallian demand functions as well as the indirect utility function. By observing the properties of the indirect utility function, we derive the
envelope theorem which makes the basis of comparative statics. Within the framework of the consumer theory, the results are closely related to the envelope theorem and have interesting
economic meaning. Furthermore, they make the foundation of the dual approach which replaces difficult to solve system of equations with easier operations of derivation and division.

Keywords

efficient distribution of income; comparative statics; the envelope theorem; Roy’s identity; duality

Hrčak ID:

19421

URI

https://hrcak.srce.hr/19421

Publication date:

10.1.2008.

Article data in other languages: croatian

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