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Page 1: Shephard's Lemma Shephard’s lemma is a major result in microeconomics having applications in consumer choice and the theory of the firm

Shephard's LemmaShephard’s lemma is a major result in microeconomics having applications in consumer choice and the theory of the firm.

Page 2: Shephard's Lemma Shephard’s lemma is a major result in microeconomics having applications in consumer choice and the theory of the firm

Shephard’s Lemma

Shephard’s lemma states that if indifference curves of the expenditure or cost function are convex, then the cost minimizing point of a given good (X) with price (PX) is unique. The idea is that a consumer will buy a unique ideal amount of each item to minimize the price for obtaining a certain level of utility given the price of goods in the market. It was named after Ronald Shephard who gave a proof using the distance formula in a paper published in 1953, although it was already used by John Hicks (1939) and Paul Samuelson (1947).

Sources: Wikipedia, http://dictionary.sensagent/shephard’s+lemma/en-en/

Page 3: Shephard's Lemma Shephard’s lemma is a major result in microeconomics having applications in consumer choice and the theory of the firm

Shephard’s Lemma

Shephard’s lemma gives a precise formulation for the demand for each good in the market with respect to that level of utility and those prices: the derivative of the expenditure function E(PX, PY, U) with respect to that price.

∂E∂PX

= X = hX (V ,PX ,PY )


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