engleski

A Note on Shadow Prices

In this paper we examine the method of Lagrange multipliers within the context of consumer optimal choices. The action of multipliers on constraints in the utility maximization problem is represented graphically as a multiplied distance between expenditures and income in the primal, and as a multiplied distance between total and given utilities in its dual. Based on those graphical representations we offer new interpretations of the optimal values of Lagrange multipliers as well as of the consumer's ordinal properties. Comparative statics results are confirmed analytically and placed within the general framework of non-linear relationships among variables that are relevant in general equilibrium analysis.

lagrange multipliers ; line of force ; line of indifference ; equilibrium ; concavity and quasi-concavity ; comparative static

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