Linear utility function

In mechanism design, quasilinear utility ensures that agents can compensate each other with side payments. All the indifference sets are parallel displacements of each other along the axis of commodity 1. In other words: linear utility function preference relation is quasilinear if there is one commodity, called the numeraire, which shifts the indifference curves outward as consumption of it increases, without changing their slope.

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The quasilinear form is special in that the demand functions for all but one of the consumption goods depend only on the prices and not on the income. Linear utility function – a special type of a quasilinear utility function. And for some reason it is not configured properly. Jump to navigation Jump to search This article is about the economic concept.

Within economics the concept of utility is used to model worth or value, but its usage has evolved significantly over time. Consider a set of alternatives facing an individual, and over which the individual has a preference ordering. A utility function is able to represent those preferences if it is possible to assign a real number to each alternative, in such a way that alternative a is assigned a number greater than alternative b if, and only if, the individual prefers alternative a to alternative b. Gérard Debreu precisely defined the conditions required for a preference ordering to be representable by a utility function. Utility is usually applied by economists in such constructs as the indifference curve, which plot the combination of commodities that an individual or a society would accept to maintain a given level of satisfaction. Individual utility and social utility can be construed as the value of a utility function and a social welfare function respectively. In finance, utility is applied to generate an individual’s price for an asset called the indifference price.