The demand function for a particular good in competitive market is given by y = a + bP. What are the associated direct and indirect utility functions?
For the given function of demand
The function for "indirect utility" can be written as
where,
z=other goods
m=income/wealth
Indirect utility function
Indirect utility function
Thus, the consumer can only get as much utility as limited to the price and also to their income/wealth.
Now, for the utility function of "direct" nature,
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