Sample final question which of the following

4. Sample Final Question: Which of the following statements is true?
(A) Roy’s identity and Shephard’s lemma both arise from the utility maximization problem.
(B) Roy’s identity and Shephard’s lemma both arise from the cost minimization problem.
(C) Roy’s identity arises from the utility maximization problem and Shephard’s lemma arises
from the cost minimization problem.
(D) Roy’s identity arises from the cost minimization problem and Shephard’s lemma arises
from the utility maximization problem.
(E) None of the above.
5

ANSWER: (C)
As shown in lecture, Roy’s identity is derived by applying the envelope theorem to the utility
maximization problem, while Shephard’s lemma is derived by applying the envelope theorem
to the cost minimization problem. The answer is (C).
6