d a U 1 b MUx1 =a =2 x1 x d x1

d a U b MUx2 = b =x1 x2 1 d x2
One unit change MU =TU n TU n 1

More than one unit change TU b TU MU = a Q2 Q1

a L( x1 x2 l 2 + P x1 ) = l1 x1 x b ( M -P2 x2 )

dervation w.r.t x1
d a L 1 b =2 a Pl x1 - 1 = x 0 d x1 (i)

dervation w.r.t x 2
d a L b = - 2l b -0 x1 x2 1 P = d x2 dervation w.r.t l
d L =1 x2 - 0 M -P2 x2 = P d l
From (i)
a 1 b a x1 x l 2 = P 1

(ii)

(iii)

From (ii)
a b b1 ) (x1 x2 l = P2 a 1 b a a b1 ) x1 x2 (x1 x b =2 P P2 1 ab 1 a a b 21) x1 x1x2 (x1 x b x=2 P P2 1 1 a(x2 1 ) x1-b = P P2 1

a b = x1 P x2 P2 1

(iv)

x1 from eq(iv)
a x2 P2 x1 = P 1
Putting eq(v) in eq (iii)

(v)

a xP d L =1 ( 2 2 ) - 0 MP P2 x2 = d l P 1

a xP M - 2 ) -0 P( 2 P2 x2 = 1 P 1

a + b MP2 x2 ( )= 0 b
Mb x2 = (a + b ) P2

x2 =
x2 =

ab P2 M P1 b )P2 (a + b

a M (a +b )P1

V=(x1 )ab (x2 ) V=( Mb a M )a ( )b (a (a + b +b ) P2 )P1

V=

a b a )a b+ (M b This is called Indirect Utility Function + b (a Pa + 1 P2b b )a

Roy's Identity Fuction

d V d P 1 x1 = d V d M d V d P2 x2 = d V d M

(i)

(ii)

V=

a b a )a b+ (M b + b (a Pa + 1 P2b b )a + b ( M )a z a b P P2 1
a b a b \ a z= + (a + b ) b

V=

+ b dM )a V ( z =b a + 1 dP P2 P 1 1

) da(a V ( ++ bb )M z =a b d M P P2 1

Put is eq(i)

d V d P 1 x1 = d V d M d V d P2 x2 = d V d M

(i)

(ii)

V=

a b a )a b+ (M b + b (a Pa + 1 P2b b )a + b Ma z a b P P2 1

V=

a b a b \ a z= + (a + b ) b

+ b d Ma V a z =b a + 1 dP P2 P 1 1

1 d 1 V \ V= 1 = a a + P d Pa P 1

)1 da(az V ( ++ bb )M = a d M P P2b 1

For x1 put values of

dd V V & in eq(i) dd P M 1

+ b a Ma z a + 1 b P P x1 =1 (2a 1 (a + + b b ))M z a b P P2 1
b + b Pa a Ma z 1 P 2 x1 = b )1 + 1 P a (a( a z P2 ++ bb )M 1

a M x1 = (a + b )P 1 For x 2 put values of dd V V & in eq (ii) dd P2 M

V=

+ b Ma z a b P P2 1

+ b d Ma V b z =+ a b 1 dP P2 P2 1

1 d 1 V \ V= + =1 b b P2 d P2 b P 1

)1 da(az V ( ++ bb )M = a d M P P2b 1
+ b b Ma z a b + 1 P P x2 =1 2 (a 1 (a + + b b ))M z a b P P2 1
b + b Pa bz Ma 1 P 2 x2 = b + )1 P a 1 (a( a z ++ bb )M 1 P 2

b M x2 = (a + b ) P2