In microeconomics, the expenditure function gives the minimum amount of money an individual needs to spend to achieve some level of utility, given a utility function and the prices of the available goods.
Formally, if there is a utility function that describes preferences over n commodities, the expenditure function
says what amount of money is needed to achieve a utility if the n prices are given by the price vector . This function is defined by
is the set of all bundles that give utility at least as good as .
Expressed equivalently, the individual minimizes expenditure subject to the minimal utility constraint that giving optimal quantities to consume of the various goods as as functions of and the prices; then the expenditure function is
Expenditure and indirect utility
- Expenditure minimization problem
- Hicksian demand function
- Slutsky equation
- Utility maximization problem
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- Mathis, Stephen A.; Koscianski, Janet (2002). Microeconomic Theory: An Integrated Approach. Upper Saddle River: Prentice Hall. pp. 132–133. ISBN 0-13-011418-9.
- Varian, Hal R. (1984). Microeconomic Analysis (Second ed.). New York: W. W. Norton. pp. 121–123. ISBN 0-393-95282-7.