Marshallian Utility Function: Understanding Consumer Preferences

What is the name of the utility function u(x, y) = (0.3 sqrt(x) + 0.7 sqrt(y))^2?

A) Marshallian Utility Function

B) Hicksian Utility Function

C) Indirect Utility Function

D) Expenditure Function

Final answer:

The utility function u(x, y) = (0.3 sqrt(x) + 0.7 sqrt(y))^2 is a type of Marshallian Utility Function.

Reflection:

As we delve into the realm of consumer preferences and utility theory, the concept of the Marshallian Utility Function comes to light. This function plays a crucial role in understanding how consumers make choices based on their preferences and budget constraints.

Marshallian Utility Function is named after the famous economist Alfred Marshall, who introduced the concept in his seminal work "Principles of Economics." This utility function helps economists and analysts quantify the satisfaction or happiness that consumers derive from consuming goods and services.

By using the formula u(x, y) = (0.3 sqrt(x) + 0.7 sqrt(y))^2, we can calculate the total utility or happiness that a consumer obtains from consuming a combination of goods x and y. The weights attached to the square roots of x and y (0.3 and 0.7, respectively) determine the relative importance or preference of each good in the consumption bundle.

Understanding the Marshallian Utility Function is essential for economists and policymakers to analyze consumer behavior, predict choices, and assess the impact of changes in prices or income on consumer welfare. By knowing how consumers allocate their resources and make trade-offs, we can gain insights into market dynamics and optimize resource allocation.

Overall, the Marshallian Utility Function serves as a powerful tool in unraveling the mysteries of consumer behavior and shedding light on the intricate balance between preferences, budget constraints, and utility maximization.