Characterizing demand functions with price dependent income (Q2452151)

The problem investigated in the paper is the analytical characterization of an individual demand function \(x(p)\) (via the Slutsky matrix) when a consumer is limited by his income \(w(p)\) which is dependent of market prices \(p\). The author notes that this problem is connected with the problem of group behavior (with respect to consumption), and up to now only linear dependent `income-prices' \(w(p)\) have been investigated in this setting. The goal of the paper is to generalize known results on arbitrary functions \(w(p)\). The investigation tools are the indirect utility function \[ V\left( {p} \right) = U\left( {x\left( {p} \right)} \right) + \lambda \left( {p} \right)\left( {w\left( {p} \right) - p'x\left( {p} \right)} \right) \] and the envelope theorem, which implies that \[ \frac{{\partial V}}{{\partial p_{i}} } = \lambda \left( {p} \right)\left( {\frac{{\partial w}}{{\partial p_{i}} } - x^{i}\left( {p} \right)} \right),\quad i = 1,\dots,n. \] This formula plays a main role in revealing Slutsky-type conditions of a demand function \(x(p)\) depending on properties of \(w(p)\).