Recent Questions - Economics Stack Exchange most recent 30 from economics.stackexchange.com 2020-12-02T06:49:23Z https://economics.stackexchange.com/feeds https://creativecommons.org/licenses/by-sa/4.0/rdf https://economics.stackexchange.com/q/41244 0 Is it possible to solve the PPAD problem by market in an acceptable time? XL _At_Here_There https://economics.stackexchange.com/users/31436 2020-12-02T03:17:14Z 2020-12-02T03:17:14Z <p>For PPAD problems, see <a href="https://en.wikipedia.org/wiki/PPAD_(complexity)" rel="nofollow noreferrer">https://en.wikipedia.org/wiki/PPAD_(complexity)</a>. It says,&quot;PPAD is a class of problems that are believed to be hard, but obtaining PPAD-completeness is a weaker evidence of intractability than that of obtaining NP-completeness. PPAD problems cannot be NP-complete, for the technical reason that NP is a class of decision problems, but the answer of PPAD problems is always yes, as a solution is known to exist, even though it might be hard to find that solution. However, PPAD and NP are closely related. While the question whether a Nash equilibrium exists for a given game cannot be NP-hard because the answer is always yes, the question whether a second equilibrium exists is NP complete. It could still be the case that PPAD is the same class as FP, and still have that P ≠ NP, though it seems unlikely.[citation needed] Examples of PPAD-complete problems include finding Nash equilibria, computing fixed points in Brouwer functions, finding Arrow-Debreu equilibria in markets.&quot;.</p> <p>My question is, Is it possible to solve the PPAD problem by market in an acceptable time( not too long to be accepted)?</p> https://economics.stackexchange.com/q/41240 1 Integral solution (or a simpler) to consumer surplus - What is wrong? by math for math https://economics.stackexchange.com/users/31331 2020-12-02T00:49:21Z 2020-12-02T03:28:15Z <p><strong>Problem</strong></p> <p>Given demand <span class="math-container">$D(p)=A-ap$</span>, and <span class="math-container">$A,a&gt;0$</span> and a fixed price <span class="math-container">$0&lt;p_1&lt;A/a$</span> by some company.</p> <p>Calculate the consumer surplus and its derivative with respect to <span class="math-container">$p$</span>. What is this number?</p> <p><strong>My solution so far</strong></p> <p>I could not find a simple way to do it since quantity is not known, <span class="math-container">$q_0$</span>. I calculated the consumer surplus as</p> <p><span class="math-container">$CS=\int_{p}^{A/a}D(p)dp=\int_{p}^{A/a}(A-ap)dp=\frac{1}{2a}(A-ap)^2=\frac{(A-ap)^2}{2a}$</span></p> <p>and its derivative as</p> <p><span class="math-container">$\frac{\partial CS}{\partial p}=\left ( \frac{(A-ap)^2}{2a} \right )=2(A-ap) \left ( \frac{\partial }{\partial p} (A-ap) \right )\frac{1}{2a}=-(A-ap)\left ( \frac{\partial }{\partial p} p \right )=-A+ap$</span></p> <p>Which I am almost certain is incorrect. I am not sure on how to approach this without a equalibrium or am I missing it?</p> https://economics.stackexchange.com/q/41233 1 Can you please help me find this topic in Mechanism design/Rational choice theory? plastico https://economics.stackexchange.com/users/19566 2020-12-01T19:37:46Z 2020-12-01T21:56:03Z <p>When I was in university, I remember studying some kind of topic in adv microeconomics where someone gives you three options, where one is obviously worse and is put there just to deceive you so that you don't pick the one with greater utility. Could you please help me remember the name of this fallacy/dilemma/theorem and what is the strategy to this?</p> <p>Thanks a lot</p> https://economics.stackexchange.com/q/41231 0 GDP of domestic and foreign economic activities of a country Stücke https://economics.stackexchange.com/users/31410 2020-12-01T16:32:39Z 2020-12-01T16:32:39Z <p>Is there an indicator which shows how much GDP of a country is generated by domestic economic activities (e.g. business between food production in Germany and agriculture in Germany) and how much GDP is generated by economic activities of that country with foreign countries (e.g. business between food production in Germany and agriculture in Brazil)?</p> https://economics.stackexchange.com/q/41229 -1 Research in Economics [closed] Anonymous M https://economics.stackexchange.com/users/26124 2020-12-01T15:54:57Z 2020-12-01T15:54:57Z <p>I have degree in Business , but take Economics for Master. Therefore, I really don't have strong base knowledge about Economics and Econometrics. So, for this Master, we will have to do research project. Currently I'm preparing the research proposal. I do not even know what issue is interesting to do a research. I also wonder if we can use Likert scale and analyze the ordinal data using econometrics because I do not familiar with research methodology in economics. I keep thinking how I want to collect data for my research project.</p> https://economics.stackexchange.com/q/41228 1 Identifiability of Non-Parametric Utility Function? High GPA https://economics.stackexchange.com/users/13381 2020-12-01T14:40:59Z 2020-12-01T15:26:43Z <p>I recently learned that EU characterized by independence and weak ordering is identifiable, but a utility function like: <span class="math-container">$U(x)=v_1(x)v_2(x)$</span> is not identifiable.</p> <p>Does it mean that &quot;cardinal uniqueness = identifiability&quot;? Or cardinal uniqueness implies identifiability but not the other way?</p> <p>I found the precise definition of &quot;identifiability&quot; parametric function. But for non-parameteric function, what is the precise definition of identifiability?</p> <p>For example, does the simplest utility function <span class="math-container">$u(x)$</span> characterized by weak order and continuity identifiable by its own? (a.k.a does ordinal uniqueness implies identifiability?)</p> https://economics.stackexchange.com/q/41227 -1 new unique price to maximize profits Sasha https://economics.stackexchange.com/users/31442 2020-12-01T14:36:19Z 2020-12-01T14:43:23Z <p>Realizing the discriminatory scheme used by airline 1, you create the other firm, that takes customer orders and re-route them to airline1 via a PC. That is, to serve a customer, firm2 buys the flight at the airline1 PC user price, and sells it to the customer, possibly at a higher price. However, not every customer is aware of your business. Suppose 20% of customers know about both airline1 and firm2 and take the best price offered to them (if prices are the same, customers choose firm2). The remaining 80% only know about airline1. Therefore, firm2 can buy as many flights as it wants at the current airline1 price for PC users which I computed in first part p=75 . This is the only cost to firm2. On this range, firm2 faces demand <span class="math-container">$0.2D(P) = 30 − \frac P5$</span> and the price must be between 75 and 100. (because we have two kinds of customers)</p> https://economics.stackexchange.com/q/41225 -2 Human capital theory DGD_987 https://economics.stackexchange.com/users/31441 2020-12-01T13:39:34Z 2020-12-01T14:01:29Z <p><a href="https://ocw.mit.edu/courses/economics/14-03-microeconomic-theory-and-public-policy-fall-2016/lecture-notes/MIT14_03F16_lec20.pdf" rel="nofollow noreferrer">https://ocw.mit.edu/courses/economics/14-03-microeconomic-theory-and-public-policy-fall-2016/lecture-notes/MIT14_03F16_lec20.pdf</a></p> <p>This may be a reach asking on this platform, however does anyone know which textbook may contain or expand upon the derivation in chapter 2 of the linked notes? Essentially I was reading up on Human Capital Theory and I came upon that derivation which confused me as it didn't seem directly related to HCT. Could someone explain how the result actually relates to HCT? Specifically, the implications of the statement: &quot;the wage increment for one more year of schooling must be approximately equal to the interest rate&quot; (top of pg5). Similarly: &quot;the estimated rate of return to a year of schooling has been about 5 to 10 percent—approximately equal to the real rate of interest plus inflation.&quot;</p> <p>Even if that were true - empirically or what not - what's the link to human capital theory exactly? In other words, what part of the derivation proves implication (1) and (2)?</p> <p><a href="https://i.stack.imgur.com/Fibq6.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/Fibq6.png" alt="enter image description here" /></a> <a href="https://i.stack.imgur.com/wqC27.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/wqC27.png" alt="enter image description here" /></a> <a href="https://i.stack.imgur.com/mghNY.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/mghNY.png" alt="enter image description here" /></a> <a href="https://i.stack.imgur.com/QbNtL.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/QbNtL.png" alt="enter image description here" /></a> <a href="https://i.stack.imgur.com/tRK0l.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/tRK0l.png" alt="enter image description here" /></a></p> https://economics.stackexchange.com/q/41220 1 Solving problem for optimal price (maximize profit) *attempt inside* by math for math https://economics.stackexchange.com/users/31331 2020-12-01T10:28:41Z 2020-12-01T15:46:19Z <p>Let a demandfunction be defined as <span class="math-container">$D(p)=B-bp$</span>, where <span class="math-container">$b,B&gt;0$</span>. A firm has some production cost, <span class="math-container">$c$</span>, and can set the price <span class="math-container">$p$</span> under the constrain given by the Demand.</p> <ul> <li>What is the optimal price?</li> <li>Is the priceelasticity higher or lower than <span class="math-container">$1$</span> (absolute value)</li> <li>How does price depend on <span class="math-container">$b$</span>?</li> </ul> <p>How would one do such a maximization problem?</p> <p><strong>My attempt</strong></p> <p>The elasticity would be given by</p> <p><span class="math-container">$\frac{p}{q}\cdot(-b)$</span> since <span class="math-container">$D'(p)=-b$</span></p> <p>Then the problem is <span class="math-container">\begin{equation*} max_p(p-c)D'(p) \end{equation*}</span></p> <p>which then follows that</p> <p><span class="math-container">\begin{equation*} D(p)+(p-c)D'(p)=0 \Leftrightarrow \end{equation*}</span></p> <p><span class="math-container">\begin{equation*} D(p)\left ( 1+(p-c)\frac{\epsilon}{p} \right )=0\Leftrightarrow \end{equation*}</span></p> <p>and then the optimal price <span class="math-container">$p^*$</span> <span class="math-container">\begin{equation*} p^*=\frac{\epsilon}{1+\epsilon}c=\frac{\left | \epsilon \right |}{\left | \epsilon \right |-1}c=\frac{\left | \frac{-bp}{q} \right |}{\left | \frac{-bp}{q} \right |-1}c=\frac{c\left | b \right |\left | p \right |}{\left | b\right |\left |p \right |-\left | q \right |} \end{equation*}</span></p> <p>and then we notice that</p> <p><span class="math-container">\begin{equation*} \left | \epsilon \right |&gt;1 \end{equation*}</span></p> <p>...............................................................................................</p> <p>I feel like this is not correct nor the right approach. Help appreciated.</p> https://economics.stackexchange.com/q/41217 0 Philippines SDG prioritization aldrich https://economics.stackexchange.com/users/31435 2020-11-30T22:53:09Z 2020-11-30T22:53:09Z <p>If the Philippines only had enough funds to prioritize just 5 Sustainable Development Goals (SDGs), what 5 goals should the Philippines pick? taking into account past tragedies that occured; typhoons and the COVID pandemic.</p> <p><strong>17 SDG's of the Philippines</strong> <a href="https://i.stack.imgur.com/aN9jw.png" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/aN9jw.png" alt="enter image description here" /></a></p> https://economics.stackexchange.com/q/41215 -1 How to calculate the allocation that maximises social welfare [closed] ano https://economics.stackexchange.com/users/31434 2020-11-30T20:49:36Z 2020-11-30T20:49:36Z <p><a href="https://i.stack.imgur.com/y1shU.jpg" rel="nofollow noreferrer"><img src="https://i.stack.imgur.com/y1shU.jpg" alt="enter image description here" /></a></p> <p>These are the valuations of b (book), p (pen), and n (notepad).</p> <p>I'm incredibly new to this and I have been trying to google what to do for the past 3 hours. How can I compute the allocation of these that maximize the SW?</p> <p>Thank you!</p> https://economics.stackexchange.com/q/41213 2 homothetic functions in economics WilliamT https://economics.stackexchange.com/users/28593 2020-11-30T19:27:36Z 2020-12-01T21:47:26Z <p>Are there any results in economics that require function to be homothetic? The textbook I am using (Essential Mathematics for Economic Analysis) says that function is homothetic when &quot; <span class="math-container">$f(x)=f(y)$</span> and <span class="math-container">$t&gt;0$</span>, then <span class="math-container">$f(tx)=f(ty)$</span>&quot;. It also mentions that there are homothetic functions which are not homogenous like <span class="math-container">$F=xy+1$</span>.</p> <p>But then all economic examples in the book where homothetic function is used turn out to work with homogenous functions too. Then why are they special? Is there some economic example where having homogenous function would not be enough so there must be homothetic function for it to work?</p> https://economics.stackexchange.com/q/41212 2 Effect of price on utility Ana Ellis https://economics.stackexchange.com/users/31407 2020-11-30T17:25:21Z 2020-12-01T08:03:57Z <p>A consumer has an endowment vector <span class="math-container">$w$</span>; at prices <span class="math-container">$p$</span> his demand for the first good exceeds his endowment; <span class="math-container">$x_1^+(p; pw)&gt;w_1$</span> then a small increase of <span class="math-container">$p_1$</span> will lower his utility.</p> <p>I was discussing this with a friend and he believes that it's based on the walras law. Prices go up, demand goes down and converges to walras law equilibrium in order to find the <span class="math-container">$z(p)$</span> vector which makes excess demand 0, price goes up, excess demand goes down, walras eq. will be satisfied and this is optimum so the utility cannot decrease. (something along those lines as far as I remember)</p> <p>But I'm more concerned that it has to do with the Income and Substitution effect more than the Walras law. But we both agree that it won't lower the utility level. However, I'm kind of stuck on the math proof behind it.</p> https://economics.stackexchange.com/q/41211 2 The current economic understanding of the effect of labour unions on employment and wages Ishan Kashyap Hazarika https://economics.stackexchange.com/users/13998 2020-11-30T17:18:24Z 2020-11-30T19:28:47Z <p>What are the currently largely accepted views on the effect of labour unions on employment and wages? Where can I read more about the currently established theoretical models that model labour unions?</p> https://economics.stackexchange.com/q/41209 2 If a rational preference relation over simple lotteries $\succsim$ are convex then they satisfy independence? crosscut22 https://economics.stackexchange.com/users/29889 2020-11-30T16:54:34Z 2020-12-01T12:42:38Z <p>Let´s say there is an uncertain situation with <span class="math-container">$N$</span> possible consequences <span class="math-container">$C = \{C_1, . . . C_N\}$</span>. Assume that there is a rational preference relation <span class="math-container">$\succsim$</span> over simple lotteries.</p> <p>I know that if <span class="math-container">$\succsim$</span> satisfies independence, then it is also <strong>convex</strong>, but is it true if <span class="math-container">$\succsim$</span> are convex then they satisfy independence? How can I show this (if the implication is true)</p> https://economics.stackexchange.com/q/41208 1 Would some help me fill in missing steps from a textbook exercise left for the reader Tony456 https://economics.stackexchange.com/users/28317 2020-11-30T16:31:23Z 2020-12-01T06:18:31Z <p>Question: Suppose <span class="math-container">$C_t=(1-s)Y_t-\lambda G_t$</span> where <span class="math-container">$s&gt;\sigma$</span> as in the basic Solow model. Out of the government expenditure , proportion <span class="math-container">$\phi$</span> is invested in public capital formation. Hence we assume <span class="math-container">$K_{t+1}=I_t+\phi G_t+(1-\delta)K_t$</span></p> <p><span class="math-container">$Y_t=K^{\alpha}_tL^{1-\alpha}_t$</span></p> <p><span class="math-container">$Y_t=C_t+I_t+G_t$</span></p> <p><span class="math-container">$K_{t+1}=I_t+(1-\delta)K_t$</span></p> <p><span class="math-container">$L_{t+1}=(1+n)L_t$</span></p> <p><span class="math-container">$G_t=\sigma Y_t$</span></p> <p>In what case will the steady state level of capital per capita increase in <span class="math-container">$\sigma$</span></p> <p>Attempt:</p> <p>step (1) <span class="math-container">$\frac{Y_t}{L_t}=\frac{K^{\alpha}_t}{L_t}\frac{L^{1-\alpha}_t}{L_t}$</span> which equals <span class="math-container">$y_t=k^{\alpha}_t$</span></p> <p>Using the same process for the national identity we get</p> <p>The evolution of capital per capita is given by the following equation:</p> <p><span class="math-container">$(1+n)k_{t+1}=i_t+\phi g_t+(1-\delta)k_t$</span> which then goes to:</p> <p><span class="math-container">$k_{t+1}\approx i_t+\phi g_t+(1-\delta-n)k_t$</span></p> <p><span class="math-container">$k_{t+1}=[k^{\alpha}_t-c_t-g_t]+\phi g_t+(1-\delta-n)k_t$</span></p> <p>Now, we can subtract <span class="math-container">$k_t$</span> from <span class="math-container">$(1-\delta-n)k_t$</span> and we get:</p> <p><span class="math-container">$k_{t+1}-k_t=-(n+\delta)k_t+\phi g_t+k^{\alpha}_t-c_t-g_t$</span></p> <p>=<span class="math-container">$(n+\delta)k_t+\phi g_t+k^{\alpha}_t - [(1-s)k^{\alpha}_t-\lambda g_t]-[\sigma k^{\alpha}_t]$</span></p> <p>= <span class="math-container">$-(\delta +n)k_t+\phi [k^{\alpha}_t\sigma]+k^{\alpha}_t-[(1-s)k^{\alpha}_t-\lambda [k^{\alpha}_t \sigma]]$</span></p> <p>We can simplify this algebraically to:</p> <p><span class="math-container">$k_{t+1}-k_t= \phi [k^{\alpha}_t \sigma] + sk^{\alpha}_t+ \lambda[k^{\alpha}_t\sigma]+(\delta+n)k_t$</span></p> <p>Finally divide both sides by <span class="math-container">$k_t$</span> and set the LHS equal to 0 and get the steady state equilibrium as:</p> <p><span class="math-container">$0 = \frac{\phi[k^{\alpha}_t\sigma]}{k_t}+\frac{sk^{\alpha}_t}{k_t}+\frac{\lambda[k^{\alpha}_t\sigma]}{k_t}-(\delta+n)k_t$</span></p> <p>Comments: I am pretty sure my calculus is correct (perhaps save for the last equation. Can anyone confirm this for me?</p> https://economics.stackexchange.com/q/41207 -2 Economics Question [closed] Rania Meziati https://economics.stackexchange.com/users/31432 2020-11-30T16:20:25Z 2020-11-30T16:20:25Z <p>The Sons of Knute Social Club is considering the purchase of a portrait of President Knute for their meeting hall. This is a discrete public good. Each of the n = 40 members has an income m = 300 and quasi-linear preferences u(x, y) = 3x1/2 + y where x = 1 (buy) or x = 0 (don’t buy) is the discrete public good and y is a private good with price pY = 3. Calculate the maximum amount that this club should spend on a painting. Enter your final answer rounded to 2 decimal places.</p> https://economics.stackexchange.com/q/41205 0 Can we model risk with only probability? capcapuccino https://economics.stackexchange.com/users/31430 2020-11-30T15:00:24Z 2020-12-01T13:14:41Z <p>Sorry for the confusion! I am adding an example to see if it helps:</p> <p>For example, consider a gamble A, with payoffs {a,b,c,d}, whose probability of each payoff being realized is equal (so 25% each); and another gamble B, with payoffs {a,b,c,d,e}, and the probability of each is 20%.</p> <p>Now I would like to measure the risk difference between the two gambles A and B, but all {a,b,c,d,e} are unknown in the data; only the 25% and 20% probabilities, and the fact that payoffs of B include payoffs of A are known. So it would not be possible to estimate expectation or variance, and using only probability seems a lot more feasible. What will be the potential problems with using only the probabilities as the risk measurements? Is there any way to bypass using expectation or variance for this situation (the ultimate goal here is to measure marginal risk aversion)? Thanks a lot!</p> https://economics.stackexchange.com/q/41194 6 What makes a company too big to fail? Carson https://economics.stackexchange.com/users/31425 2020-11-30T04:22:15Z 2020-12-01T22:14:36Z <p>I have read the <a href="https://en.m.wikipedia.org/wiki/Too_big_to_fail" rel="nofollow noreferrer">too big to fail Wikipedia</a> and as far as I understand, a company is too big to fail (and thus will receive government bail-outs) if it's failure has a significant impact on an important industry or the economy as a whole. Is my understanding correct? For example, a company such as Snapchat would not be bailed out because while it is worth a lot of money, its failure does not hurt the United State's infrastructure or the economy as much as GM's failure.</p> https://economics.stackexchange.com/q/41184 1 Walrasian demand with a twist of Leontief function Ana Ellis https://economics.stackexchange.com/users/31407 2020-11-29T18:58:37Z 2020-12-01T12:32:04Z <p>A consumer has the utility function <span class="math-container">$u(x_1; x_2) = \min(x_1; x_2) + 5 \max(x_1; x_2)$</span>. Find its Walrasian demand <span class="math-container">$x^*(p; w)$</span>.</p> <p>I've tried searching it up when we have two Leontief functions summed together but to no luck. If this was a simple case we'd just have <span class="math-container">$x_1=x_2$</span> and substitute it to the budget constraint to find the demand for both. Should we take each function separately or as a whole together? Kinda lost here.</p> https://economics.stackexchange.com/q/41104 3 Complexity economics and computational economics books recommendation Tortar https://economics.stackexchange.com/users/24572 2020-11-25T16:52:35Z 2020-12-01T00:49:25Z <p>I'm looking for books in <a href="https://en.wikipedia.org/wiki/Complexity_economics" rel="nofollow noreferrer">complexity economics</a> and/or <a href="https://en.wikipedia.org/wiki/Agent-based_computational_economics" rel="nofollow noreferrer">agent-based computational economics</a>.</p> <p>What are some good introductory and advanced books in these fields? Thanks in advance</p> https://economics.stackexchange.com/q/40498 3 How can you interpret one of the parameters of optimal consumption at the Merton portfolio problem? epine_se https://economics.stackexchange.com/users/31009 2020-10-28T10:49:19Z 2020-11-30T21:52:48Z <p><strong>Statement:</strong> Let the dynamics of wealth of the agent satisfy <span class="math-container">$$dX_{t} = \pi_tX_t\Big(\mu dt+\sigma dB_{t}\Big)- c_t X_t dt, \qquad \textrm{with}\quad X_0=x_0 \in \mathbb{R},$$</span> where <span class="math-container">$(\pi,c)$</span> is an investment-consumption (<span class="math-container">$\pi$</span> - fraction of wealth to invest, <span class="math-container">$c$</span> - fraction of wealth to consume).</p> <p>Under standard Merton optimization problem the agent is to maximize the expected utility <span class="math-container">$$J(\pi,c) =\mathbb{E}\Big[\int_0^TU(c_tX_t) dt + U(X_T)\Big],$$</span> under CRRA power utility <span class="math-container">$$U(x) = \frac{1}{1-\frac1\delta}x^{\frac1{1-\frac1\delta}}, \quad \delta &gt; 0, \delta\neq 1,$$</span> so <span class="math-container">$\delta$</span> plays a role of <em>risk-tolerance</em> parameter.</p> <p>The optimal plan is then given by <span class="math-container">$$\pi^* = \frac{\mu}{\sigma^2}\delta,\quad c^*_t=\Big( \frac1{\beta}-\big(1-\frac1\beta\big)e^{-\beta(T-t)}\Big)^{-1},$$</span> where <span class="math-container">$\beta = \frac{\mu^2}{2\sigma^2}\delta(1-\delta).$</span></p> <p><strong>Question:</strong> How can I interpret <span class="math-container">$\beta$</span> at this point? I have seen that <span class="math-container">$\frac{\mu^2}{2\sigma^2}\delta$</span> is sometimes referred to as <em>expected portfolio return</em>. But what is the meaning when I multiply it by <span class="math-container">$1-\delta$</span>? If <span class="math-container">$\delta &gt; 1$</span>, it can be negative. I would call it <em>effective expected portfolio return</em>, but am not sure. If you can provide any reference, that would be perfect. Thanks in advance!</p> <p><strong>P.S.</strong> I was adapting my model to the standard Merton one, sorry for any discrepancies.</p> https://economics.stackexchange.com/q/37958 -1 How does low volume explain why ITM call's ask price < its strike price + option premium? NNOX Apps https://economics.stackexchange.com/users/4020 2020-07-30T01:21:00Z 2020-12-01T23:16:04Z <p><a href="https://redd.it/hzqwzc" rel="nofollow noreferrer">On Jul 28 2020</a>, u/OGdungeonmaster asked:</p> <blockquote> <p>I have 10 <span class="math-container">$7.50c options for Euronav [[EURN:NYSE](https://finance.yahoo.com/quote/EURN?p=EURN&amp;.tsrc=fin-srch)] that expire 11/20. They show they are worth$</span>2.18 each yet the stock is at $9.72. Why would they be worth less than the strike price plus the option premium? This bc it is so low volume or because it is indicative that its going to go down?</p> </blockquote> <p>u/NBKkevlar answered, with <a href="https://old.reddit.com/user/NBKkevlar" rel="nofollow noreferrer">11 upvotes to date</a></p> <blockquote> <p>Probs cause of the low volume, looks like only 1 contract was traded today for that exp/strike. The bid/ask as of market close was 1.95/2.40. So technically people are only selling those contracts for 2.40. which means the contracts are trading slightly higher than strike price plus the option premium.</p> </blockquote> <blockquote> <p>I’m pretty sure the 2.18 that they’re “worth” is what you would most likely get if you sold them using a market order</p> </blockquote> <p>I don't understand why volume remains low, or how low volume answers the question. Why wouldn't an arbitrageur or market-maker swiftly enter, and buy the undervalued call?</p> https://economics.stackexchange.com/q/32545 0 Tendency of the rate of profit to fall Wallows https://economics.stackexchange.com/users/24756 2019-11-01T15:11:49Z 2020-12-02T03:02:20Z <p><a href="https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall" rel="nofollow noreferrer">https://en.wikipedia.org/wiki/Tendency_of_the_rate_of_profit_to_fall</a></p> <p>The tendency of the rate of profit to fall (TRPF) is a hypothesis in economics and political economy, most famously expounded by Karl Marx in chapter 13 of Capital, Volume III. Economists as diverse as Adam Smith, John Stuart Mill, David Ricardo and Stanley Jevons referred explicitly to the TRPF as an empirical phenomenon that demanded further theoretical explanation, yet they each differed as to the reasons why the TRPF should necessarily occur.</p> <hr> <p>Now, I have some years trained as an economist; but, find the whole fuss around the TRPF somewhat strange. Marx lived in a time of a non-fiat economy. The inherent value of one kopiejek or what have you was based on how much bread it could exchange. Nowadays money is defined to be a unit of account maintained by trust in the FED. Hence, inflation targeting. </p> <p>So, did Marx really miss the memo about credit? Can someone help me better understand where am I getting this concept wrong as so many think this is the cornerstone of Marxian economics. </p> https://economics.stackexchange.com/q/30102 0 Maximizing units under a budget constraint and increasing costs Lola1984 https://economics.stackexchange.com/users/15053 2019-07-08T14:37:34Z 2020-12-02T05:03:20Z <p>Consider two columns. </p> <p>Column A has total cost per day, Column B has units bought that day. The marginal cost of each unit is increasing because of limited supply.</p> <p>My goal is to estimate total possible units under a certain budget.</p> <p>What I did for this was run a LOGEST estimation to get the information in the form of cost = b+ m^units My reason for doing this is because of the increasing marginal cost per unit.</p> <p>I got the function : y = 1.00077^x + 0.24</p> <p>But when maximizing it, the numbers I'm getting for units are too small under this budget.</p> <p>I also ran a LINEST and got that each unit bought increases the cost per unit by approximately 0.0005814009591$. I have been unable to make a model that uses this estimation.</p> <p>Any suggestion or different approach will be much appreciated, Thanks.</p> https://economics.stackexchange.com/q/29176 0 robinson economy with production bajun65537 https://economics.stackexchange.com/users/23083 2019-05-07T11:01:39Z 2020-11-30T20:05:35Z <p>Facing a little bit of a problem with this questions, did a similar one BUT the utility function was not linear and got MRS dependent on goods (was not just a number) - here I am at a loss. </p> <p>The question: There are two individuals A and B, each having one unit of time which can be used either for leisure or labor (to produce a good to consume). Their utility functions are respectively: </p> <blockquote> <p>u<sub>A</sub>(l<sub>A</sub>,c<sub>A</sub>) = 6(1-l<sub>A</sub>) + c<sub>A</sub> and u<sub>B</sub>(l<sub>B</sub>,c<sub>B</sub>) = 10(1-l<sub>B</sub>) + c<sub>B</sub></p> </blockquote> <p>Where 1-l<sub>A/B</sub> is the leisure time for A/B. Furthermore, we know that A can produce 4 units of the consumption good per 1 unit of labor time, and B can produce 24 units of the consumption good per 1 unit of labor time. </p> <p>The last information I transformed into: </p> <blockquote> <p>c<sub>A</sub> = f(l<sub>A</sub>) = 4l<sub>A</sub> and c<sub>B</sub> = g(l<sub>B</sub>) = 24l<sub>B</sub></p> </blockquote> <p>(where f and g are some production functions)</p> <p><strong>I am being asked to find the set of Pareto-optimal allocations of consumption and labor.</strong></p> <p>I assume I need to start with MRS<sub>A</sub> = -6 (or 6? never know when to use negative/positive?) and MRS<sub>B</sub> = -10. However, I am not sure what piece of information I can get from that? I assume that indifference curves are lines, right? And that they will always cross, which then would imply that the set of Pareto-optimal points is on the boundary of Edgeworth box? </p> <p>On the other hand, these guys maximize their utilities so that:</p> <blockquote> <p>max 6(1-l<sub>A</sub>) + c<sub>A</sub> = max 6(1-l<sub>A</sub>) + 4l<sub>A</sub> = max 6 - 2l<sub>A</sub> </p> </blockquote> <p>and</p> <blockquote> <p>max 10(1-l<sub>B</sub>) + c<sub>B</sub> = max 10(1-l<sub>B</sub>) + 24l<sub>B</sub> = max 10 + 14l<sub>B</sub></p> </blockquote> <p>meaning that l<sub>A</sub> = 0 and l<sub>B</sub> = 1. That is, A will spend his 1 unit of time for leisure: 1-l<sub>A</sub> = 1-0 = 1 and B will spend his 1 unit of time for labor.</p> <p><strong>Two other questions are</strong>:</p> <ol> <li>Find Pareto-optimal allocations that are also envy-free.</li> <li>How would the analysis go when A could produce 7 units of good per 1 unit of labor time. </li> </ol> <p>But I think I should be able to answer them, after some hints for the first part of the question. ;) </p> https://economics.stackexchange.com/q/24461 0 intertemporal utility maximisation skukkzky https://economics.stackexchange.com/users/19399 2018-09-11T10:58:05Z 2020-12-01T21:04:05Z <p>Adam's consumption period 1 and 2 are denoted by $c_1$ and $c_2$ respectively. His utility function is $U(c_1,c_2)=4c_1^{0.5} + c_2$ Ben earns an income of \$3 in period 1 and \$3 in period 2, regardless of the level of inflation. a. Suppose there is no inflation and the interest rate is 5%. How much will Ben consume in each period? b. Now suppose that inflation rate rise to 100%. How much will Adam consume in each period now?</p> <p>For part a, I took $c_2= -1.05c_1 + 6.15$ as the budget line and equated it to MRS of his utility function. I managed to obtain $c_1 = 3.63$ and $c_2= 2.341$.</p> <p>However, I am unsure of how to do part b as I obtain a negative answer for $c_2$ after doing the same steps as part a. The only differenece was that I took into account inflation for part b.</p> https://economics.stackexchange.com/q/22215 3 Use Lag Operator to find Lifetime Budget Constraint T. G. https://economics.stackexchange.com/users/18446 2018-05-29T13:05:32Z 2020-11-30T18:05:10Z <p>The budget constraint is </p> <p>$c_t + \tau_t + s_{t+1} =w_t(1-l_t) +(1+r_t)s_t$</p> <p>And assume</p> <p>$\underset{t \longrightarrow \infty}{lim} \ \displaystyle{\frac{s_t}{\Pi_{i=1}^{t-1} (1+r_i)}} = 0$</p> <p>Lag Operator $L$ is defined as $L \cdot x_{t+1} = x_t$</p> <p>How can I get lifetime budget constraint using the Lag Operator?</p> <p>Many Thanks!</p> https://economics.stackexchange.com/q/16395 0 Explanation of differential equation for Price Elasticity of Demand finolex1 https://economics.stackexchange.com/users/12959 2017-04-20T14:13:30Z 2020-12-01T23:59:57Z <p>I understand that Price Elasticity of Demand (PED) measures the percentage change in quantity demanded of a good with respect to a percentage change in its price.</p> <p>However, I don't quite understand the intuition behind the formula for PED being:</p> <p>$e_{{\langle p\rangle }}={\frac {{\mathrm {d}}Q/Q}{{\mathrm {d}}P/P}}$</p> <p>and not simply described by the following:</p> <p>$e_{{\langle p\rangle }} = {\frac {{\mathrm {d}}Q}{{\mathrm {d}}P}}$</p> <p>This might be quite an elementary question, but I'm hoping for a bit of clarification. </p> https://economics.stackexchange.com/q/14883 3 Did a similar property boom take place in another country or throughout history like we have seen in London? If so how did it effect the economy? Sharingan https://economics.stackexchange.com/users/11649 2017-01-03T10:00:20Z 2020-12-01T11:30:13Z <p>The London property market has seen a sharp increase in the average house price. If we go back to the 70's the average UK and average London price were almost the same, however since than the gap has increased quite dramatically. The average property in London is +£400k, whereas in the UK this is almost half.</p> <p>How long prices will increase till the bubble will burst? Some say property prices tend to double every 8 years, if that's the case then in few years time the average price will be £800k, however this is not a fair balance compared to the average salary in London. My question whether the world has seen a similar property boom like in London (throughout history) where there is an imbalance of property prices &amp; income, prices shooting up to such an extend that they become unattractive/ unaffordable? If so it would be nice if you could provide some reference as I am interested to study this into more detail and understand what the effects were of such highly priced market and how the economy responded?</p>