Define Homotheticity

HomeCategory: EconomicsDefine Homotheticity
Angelmimi asked 2 weeks ago

What do economists mean by homothetic function?

1 Answers
Angelmimi answered 2 weeks ago
  • Let u(x) be a function homogeneous of degree one in x. Let g(y) be a function of one argument that is monotonically increasing in y. Then u(g()) is a homothetic function of y.
  • So a function is homothetic in y if it can be decomposed into an inner function that is monotonically increasing in y and an outer function that is homogeneous of degree one in its argument.
  • In consumer theory there are some useful analytic results that can come from studying homothetic utility functions of consumption.