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.

Question

Quizplus · Accepted Answer

This statement is true. Homotheticity of tastes implies that the individual's preferences do not depend on the level of income or prices, but only on their ratios. This allows for the existence of a utility function that represents these preferences, and the expenditure function derived from this utility function will be homogeneous of degree 1 in utility.

If Tastes Are Homothetic, There Exists a Utility Function That