An individual's indirect utility function is defined as the following:

2

12

where 1 and 2 represent the prices of goods 1 and 2, respectively, and denotes

individual income.

a) Outline the general properties associated with the indirect utility function and

describe an application where the indirect utility function is useful from a

policy perspective.

b) State and prove Roy's Identity. Use your result to derive the Marshallian

demand functions for goods 1 and 2.