Community Digest

Top new questions this week:

Can I assume utility functions strictly increasing?

I am required to show that if: $f:R^L \rightarrow R$ is a strictly monotonic function and $u:R^L \rightarrow R$ is a utility function representing a preference relation $\succsim$, then the function $...

microeconomics proof  
asked by Kinno 2 votes
answered by Michael Greinecker 3 votes

Closed form solution to consumption-saving model in discrete time

Consider the simplest consumption-savings model of the following form: $$ \max_{\{c_t,a_{t+1}\}_t}\mathbb{E_0}\sum_{t\geq 0} \beta^tu(c_t) \\ a_{t+1} + c_t = (1+r)a_t + y_t \\ y_t \mid y_{t-1} \sim F $...

macroeconomics consumption dynamic-programming dynamic-optimization saving  
asked by Jsck 2 votes

Is Hal Varian's intermediate microeconomic externality graph wrong?

Here is the capture from Hal Varian's Intermediate Microeconomics chapter Externality. I remember clearly my lecturer said this graph is wrong several years ago, but I cannot remember the argument ...

microeconomics public-economics welfare-economics environmental-economics  
asked by LJNG 1 vote
answered by Adam Bailey 1 vote

Negative Definite vs Semi-definite Hessian - Sufficient vs Necessary conditions?

When a Hessian matrix is negative definite at a critical point then that critical point is a local maximum (Sufficient Condition). As per the calculus wiki: Link, when the Hessian is negative semi-...

mathematical-economics optimization linear-algebra  
asked by Kinno 1 vote
answered by Bertrand 2 votes

What are the major flaws of the RBC model and how does the New Keynesian model address them?

Looking for a generic answer to this question and potentially literature etc. that will help me study this question. Thanks in advance.

macroeconomics new-keynesian-economics rbc  
asked by Emma Tilda 1 vote
answered by manifold 1 vote

Opportunities for Computer Science Graduates in the Field of Economics

I know this question has been asked quite a few times already but I have several other different questions to ask too. So, I am asking all of them here. Let me give you a quick summary of my ...

academic-graduate research computation data python  
asked by Shahriar Tasnim 1 vote
answered by RegressForward 1 vote

Lagrangian in Ramsey model

I struggle to write and solve Lagrangian in the Ramsey model. I have the following individual preferences with a budget constraint: and an additional constraint that is a no-ponzi condition: How to ...

macroeconomics microeconomics utility  
asked by Julie 1 vote

Greatest hits from previous weeks:

How can I obtain Leontief and Cobb-Douglas production function from CES function?

In most Microeconomics textbooks it is mentioned that the Constant Elasticity of Substitution (CES) production function, $$Q=\gamma[a K^{-\rho} +(1-a) L^{-\rho} ]^{-\frac{1}{\rho}}$$ (where the ...

mathematical-economics production-function cobb-douglas leontief  
asked by Huseyin 26 votes
answered by Alecos Papadopoulos 25 votes

Perfect complement preferences in an exchange economy

So I have an exam in a bit, I understand that to find the optimal choice you have to equate tangent of the two indifference curves. However, if the other indifference curve is a perfect complement, ...

pareto-efficiency perfect-complements  
asked by Skipe 6 votes
answered by Amit 5 votes

What are FOCs and SOCs?

I keep seeing the terms first-order conditions and second-order conditions used in my undergrad economics class on production functions, monopolies, etc but I have no idea what these terms mean. It ...

asked by Stan Shunpike 23 votes
answered by Herr K. 26 votes

How does everyone not become poor over time?

Look at the whole world --the union of all goods and services and workers and customers. Everyone who is a customer is a worker somewhere (they had to get the money to be a customer somehow). But not ...

macroeconomics inequality  
asked by DeeDee 17 votes
answered by 1muflon1 35 votes

Differences between Hicksian and Slutskian approaches

When deriving the substitution effect for both Slutskian and Hicksian definitions, a 'phantom' budget line is drawn.However, for a Slutskian definition, the 'phantom' budget line is drawn parallel to ...

microeconomics consumer-theory  
asked by Kenneth .J 7 votes
answered by Catarina RP 5 votes

Fundamental equations in economics

For the other sciences it´s easy to point to the most important equations that ground the discipline. If I want to explain Economics to a physicist say, what are considered to be the most important ...

macroeconomics microeconomics mathematical-economics soft-question  
asked by Lumi 68 votes
answered by Alecos Papadopoulos 53 votes

What do supply-demand curves really look like?

In my basic high school economics course, we've always used supply-demand curves that are lines to simplify calculations. In real markets for real goods, what do the supply and demand curves look like?...

microeconomics supply-and-demand  
asked by eepperly16 19 votes
answered by ahorn 15 votes

Can you answer these questions?

Fuzzy RDD when individuals can affect the probability of treatment

I want to evaluate the effect of getting into a program on earnings. In my case individuals that get a score above $c$ can decide weather to get into the program or not. On the other hand those that ...

instrumental-variable causal-inference rdd  
asked by Giorgetto 1 vote

Price rigidity and demand-constrained economies

In this note,, Krugman develops a simple model to introduce the idea that whenever an economy experiences price rigidity then this economy is demand-...

macroeconomics price aggregate-demand multiplier  
asked by user28453 1 vote

Why does a buyer-employment contract dominate a spot contract in this example (Bolton & Dewatripont, p497)

I'm working through Bolton and Dewatripont, Section 11.1.2, and have some questions about material in 11.2.5 on the bottom of page 497. I've tried to abbreviate the setup below, followed by my ...

asked by akm 2 votes
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