92. INDIRECT UTILITY FUNCTION & EXPENDITURE FUNCTION |Definition| Properties (Adv. Microeconomics)

#microeconomics #indirectutilityfunction #expenditurefunction
A consumer's indirect utility function is a function of prices of goods and the consumer's income or budget. The function is typically denoted as v(p, m) where p is a vector of prices for goods, and m is a budget presented in the same units as the prices. The indirect utility function takes the value of the maximum utility that can be achieved by spending the budget m on the consumption goods with prices p. This function is termed "indirect" because consumers generally consider their preferences in terms of what they consume rather than price (as is used in the function). Some versions of the indirect utility function substitute w for m where w is considered income rather than budget such that v(p,w).

Related to the indirect utility function is the expenditure function, which provides the minimum amount of money or income an individual must spend to achieve some pre-defined level of utility. In microeconomics, a consumer's indirect utility function illustrates both the consumer's preferences and prevailing market conditions and the economic environment.

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