If tastes are homothetic, there exists a utility function that represents those tastes and that gives rise to an expenditure function which is homogeneous of degree 1 in utility.
Answer the following statement true (T) or false (F)
True
Rationale: An expenditure function that is homogeneous of degree 1 in utility is one that says we can increase utility by a factor k if we increase spending by a factor k. If tastes are homothetic, we know that all optimal bundles lie on the same ray from the origin as long as prices remain unchanged -- which means the statement must in fact be true.
You might also like to view...
Which of the following is a component part of investment spending?
A) the purchase of a new microwave by a fast food restaurant B) the purchase of 500 shares of corporate stock C) the sale of 500 shares of corporate stock D) all of the above
If the demand curve for orange juice is expressed as Q = 2000 - 500p, where Q is measured in gallons and p is measured in dollars, then at the price of $3, elasticity equals
A) -0.33. B) -3. C) -9. D) -17.