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The Application of Lagrange Multipliers in Consumer Choice Theory

Author

Listed:
  • Petr Mach

    (University of Finance and Administration)

Abstract

This article deals with the consumer choice theory developed by Irving Fisher, Francis Edgeworth, Vilfredo Pareto, and John Hicks. A three-dimensional utility function is presented as an alternative to indifference curves. In mainstream textbooks, the indifference curves together with the budget constraint are used to find the optimum of a consumer graphically at a point where the budget line is a tangent line to an indifference curve. In this article, a vertical cross-section of the three-dimensional utility function and the Lagrange multipliers are applied to find the optimum of a consumer directly from the three-dimensional utility function subject to the budget constraint.

Suggested Citation

  • Petr Mach, 2022. "The Application of Lagrange Multipliers in Consumer Choice Theory," ACTA VSFS, University of Finance and Administration, vol. 16(1), pages 63-75.
    • Handle: RePEc:prf:journl:v:16:y:2022:i:1:p:63-75
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    File URL: https://www.vsfs.cz/periodika/acta-2022-1-04.pdf
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    References listed on IDEAS

    as
    1. Vilfredo Pareto, 2008. "Summary of Some Chapters of a New Treatise on Pure Economics by Professor Pareto," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 67(3), pages 453-504, December.
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    More about this item

    Keywords

    consumer choice; consumer optimum; indifference curves; three-dimensional utility function;
    All these keywords.

    JEL classification:

    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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