Utility function
Student-written example
Shared for study and reference. Not a sample of our professional writing.
About this example
This assignment was contributed by a student. The views expressed are the author’s and do not necessarily reflect those of UKEssays. Use it to inform your reading and develop your own work.
Question
What is a utility function?
Answer
Utility function U(X,Y), in economics, measures the welfare or satisfactions of a consumer as a function of consumption of real goods. In other words, the utility function assigns a number to each basket so that the more preferred baskets get a higher number than less preferred baskets. The numerical number assigned to each basket is called its total utility. To postulate the utility function, some assumptions are made about preferences that they are: complete, transitive, monotonic and averages are preferred to extremes. Here are some common utility functions that might be used to represent consumer preferences (the other one is perfect complements) :
Cobb-Douglas Utility Function: U(X,Y) = XαYβ where α and β are parameter values which are given. The family of Cobb-Douglas utility functions is widely used in Economics because it yields the nice convex indifference curves that we typically observe in consumer behaviour.
Perfect Substitutes: U(X,Y) = αX + βY where α and β are parameter values which are given. This type of utility function will yield indifference curves which are straight lines. The slope of the indifference curve will depend on the values of α and β.
References
UK Essays writing support
Need support with your own question?
Get help from our experienced academic writers. All hold at least a 2:1 degree from a reputable university, and most hold a master’s degree or PhD, and/or have teaching experience.
Send us your question and, if you wish, any marking criteria. We’ll write a model answer to your brief.
Cite This Work
To export a reference to this article please select a referencing stye below:
Related Services
View all
DMCA / Removal Request
If you are the original writer of this assignment and no longer wish to have your work published on UKEssays.com then please click the following link to email our support team:
Request essay removal