engleski

Functional Separability and the Optimal Distribution of Goods

: The Cobb-Douglas utility function plays a very important role in both consumer and production theory. It is the ordinal version of the utility function resulting from the Marshall’ s assumption of constant marginal utility of income. Based on the economic interpretation of this function’ s exponents we derive the two-phase algorithm for finding the optimal distribution of goods. The first phase consists of determining the optimal expenditure on the group of goods, while the second phase consists of determining the optimal expenditure on each good within the same group. By combining the two-phase programming and the consumer theory we develop the geometrical interpretation of the link between the price index and optimal quantity index through the original interpretation of the income expansion path.

: efficient distribution of income; weakly separable utility function; income expansion path; two-phase programming

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