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An Expository Note on Alchian-Allen Theorem When Sub-Utility Functions are Homogeneous of Degree n ą 0

Saito, Tetsuya (2007): An Expository Note on Alchian-Allen Theorem When Sub-Utility Functions are Homogeneous of Degree n ą 0.

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Abstract

This expository note shows Alchian and Allen’s conjecture–consumers purchase fine quality relatively more than coarse one– is true under some specific conditions about homogeneity, inner solution and substitutability while allowing the influence of the income effect. In the proof, to be an exposition, I emphasize graphical representations of Alchian-Allen Theorem than algebra.

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