The indirect utility function relates directly to utility, assuming the person is utility-maximizing

Derivation Process:

  • Use Lagrangian Optimization to derive Demand Functions
  • Substitute these demand functions into the original utility function to get the indirect utility function.


  • HD0 in Check after derivation!
    • In other words, inflation in prices and income doesn’t change utility
  • Decreasing in prices (), Increasing in income ()
    • Check after derivation!
  • Use Roy’s Identity to get back to the Marshallian Demand.