Homothetic Function / Homotheticity

Definition:

Let u(x) be a function homogeneous of degree one in x. Let g(y) be a function of one argument that is monotonically increasing in y. Then u(g()) is a homothetic function of y.

So a function is homothetic in y if it can be decomposed into an inner function that is monotonically increasing in y and an outer function that is homogeneous of degree one in its argument.

In consumer theory there are some useful analytic results that can come from studing homothetic utility functions of consumption.

(Econterms)

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