Questions tagged [consumer-theory]

the study of consumer choice and its fundamental underpinnings in preferences and constraints.

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50 views

Is there a proof for composite commodity theorem?

I have been reading Economics and Consumer Behavior by Angus Deaton and John Muellbauer, specifically reading up on Composite Commodity Theorem, which states: if prices move in parallel to each ...
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1answer
34 views

Asymmetric (in sign) cross-price derivatives in consumer-theory problem

I'm puzzled why, in the following optimal-choice problem, good $x$ depends on price $p_y$ but the opposite is not true. Should not the sign of $\frac{\partial x}{\partial p_y}$ be the same of $\frac{\...
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49 views

The mathematical proof of a monotonic utility transformation does not restrict the use of strictly decreasing monotonic functions. Why bar them?

I understand from an intuitive sense that decreasing monotonic transformations will skew the choices and ordinality. But mathematically the $F'(U(x,y))$ just cancels out each other out in numerator ...
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1answer
30 views

A weaker definition of local non-satiation can also imply indifference “curve”

Let $u$ be a continuous utility function on $\mathbb R^2_+\setminus\{0\}$. Consider the following three conditions: Local non satiation says that for any $x \in X$ and $\epsilon > 0$, there exists ...
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1answer
29 views

What is the iff condition for a preference with linear Engel curves (all Engal curves are linear)?

If we restrict the consumption at $\mathbb R_+^n$, then it seems like we are implicitly assuming that the Engel curve pass through the origin, so the iff condition would be homothetic preference. ...
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16 views

Household utility functions

In basic consumer theory, there is an individual consumer who has a utility function, this function induces the individual's demand (given budget and prices), and this in turn determines the ...
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41 views

Independence Axiom for Linear Utility - Who proved this first?

Who first proposed the following axiomatization of linear utility using Independence? I remembered that it was Debreu but I am not so sure. What was the first paper proving this? Consider a ...
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28 views

Finding the optimal consumption bundle given the strictly concave utility function $v(x,y) = U(x) +y$?

I am also finding it difficult to understand what are the fundamental differences between analysing optimal bundles between concave and convex functions ? Does it also happen that the optimal bundle ...
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1answer
24 views

How can i determine the homogeneity degree of Stone Gaery function? [closed]

I dont know how to demonstrate homogeneity degree of this function $(X-\alpha)^{\beta}(Y)^{1-\beta}$ Any idea? Thanks.
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16 views

Do you know any paper that discuss the effect of the deterrence of fines of individuals' behaviours? What is the difference between a fine a fee?

According to Gneezy and Rustichini the presence of an extrinsic reward in activities with a level of intrinsic motivation (e.g. volunteering) reduces intrinsic motivation, thus it may determine ...
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36 views

Dividing households by income

I wonder how one should (or does) divide households by income in a sensible way. Say you want to divide households in a country into five income groups: very small income small income medium income ...
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2answers
33 views

Market baskets: cross-border comparisons

The concept of a market or consumer basket is quite intuitive. I assume a market basket for a given country tells for which goods an average person spends how much of her money. To be able to compare ...
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3answers
83 views

Is the price-quantity diagram fundamentally wrong?

I have wondered about the following diagram: which shows a relationship between Price (Preis) and quantity (Menge). The supply (Angebot) curve is rising with the amount; the demand (Nachfrage) is ...
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1answer
17 views

Substitution effect when price of both goods change by the same percentage

I am trying to grasp the concept of income- and substitution effects. The way, I've understood it, the decomposition bundle is found, at the original indifference curve, where the slope equals that ...
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19 views

How are preferences related to relative prices?

For instance, across regions of a country or between countries. Is that different preferences for food lead to distinct relative prices in different regions or countries? Or is it the other way ...
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1answer
56 views

GARP and SARP assumed mononticity?

Monotonicity means the decision maker prefer more goods than less. It is not mentioned in textbook that SARP and GARP preasumed monotonicity. GARP: if $a$ is indirectly revealed preferred to $b$, ...
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1answer
33 views

How is patience modelled?

How is consumer patience modelled? My first thought was "discount factors, but the problem is that it doesn't seem to capture the intuitive notion of what being patient means. For example, the ...
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23 views

Number of items per consumer in a period (German supermarkets)

I'm trying to find some figures, however I cannot come up with a correct formulation, or lack of information in this field. I need the statistics of how many items are sold per receipt (avg) in ...
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1answer
53 views

Question about Locally non-satiated preferences

If a consumer has locally non-satiated preferences, which of these 2 bundles is preferred and why? Bundle A: (1,3) Bundle B: (4,2) This is what I've reasoned from my very limited understanding of ...
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1answer
44 views

Optimal choice for a weird leontief function

Compute the optimal choice for a consumer with the following utility function: $$u(x_1, x_2) =\max \{\min(2x_1, x_2), \min(x_1, 2x_2)\}$$ I'm familiar with computing optimal choice for perfect ...
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1answer
296 views

Imperfect Substitutes and Utility Funcitions

The utility function for perfect substitutes is defined as U(X,Y) = aX + bY. If the two goods X&Y are imperfect substitutes what would be their utility function?
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70 views

What is the difference between ordinary income effect and endowment income effect?

As far as I understand: Ordinary income effect: A change in the price of good 1 will affect my future behaviour (the quantities that I will buy of good 1 and good 2). But it doesn't really affect my ...
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184 views

Is the Hicksian demand curve steeper or flatter than Slutsky demand?

Putting price on the vertical axis and quantity on the horizontal axis, is the Slutsky demand steeper or flatter than the Hicksian demand curve? If I calculate the Slutsky and Hicksian substitution ...
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203 views

Budget lines and Indifference curves: How do you figure where exactly you should draw the IC tangent to a budget line?

In Consumer Choice, we frequently encounter budget lines and indifference curves. For a given budget line, the optimization point is at the point where the indifference curve is just tangent to the ...
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1answer
80 views

Example of a rational and continuous preference relation that does not admit a utility representation

It is well-known that a rational, continuous and monotone preference relation $\succeq$ defined on $\mathbb{R}^L$ admits a utility representation. I would like to understand why monotonicity is ...
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2answers
142 views

what is $b(p)$ in the Almost Ideal Demand System?

In Hal Varian's Microeconomic analysis (page 213) he discusses the Almost Ideal demand system. There he describes the AIDS system as follows: The almost ideal demand system (AIDS) has an ...
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1answer
38 views

Consumer behaviour [closed]

If the last dollar spent on commodity X gives him less marginal utility, he will withdraw this amount from X and spend it on Y if it gives him higher marginal utility. Here consumer how can consumer ...
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1answer
57 views

Imperfect substitute

Perfect substitute- Pepsi and Coca-Cola and Imperfect substitute- Tea and Coffee . Here why tea and coffee considered imperfect substitute?
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2answers
167 views

feature of indifference curve [closed]

The characteristic feature of indifference curve is that it will not touch the X axis or Y axis. But as a special case it will touch the Y axis if the combination is between Money and Commodity. "If ...
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1answer
88 views

Differences between Slope of budget line and MRS?

Slope of budget line= change in y/ change in x and also Marginal rate of substitution= change in y/ change in x. If the definitions are same of both then what is the difference between the two? I ...
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2answers
39 views

If the consumer is not a price taker, does she still set marginal rate of substitution equal to the price ratio?

Consider some consumer who consumes good $x$ and $y$. The price of $x$ is fixed to be $k$. The price of $y$ is $c(y)$. The consumer's marginal rate of substitution is given by $\frac{-x}{y}$. If the ...
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1answer
141 views

Proof for homogeneity of elasticities

Throughout microeconomic literature i see the following restiriction placed on the nature of elasticities in demand system estimation. This being for some arbitarary good $x$ we require price ...
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2answers
193 views

Is utility in neoclassical economics a circular argument/concept?

Neoclassical economics as a utility function that represents a consumer's preference ordering over a choice set. Joan Robinson criticized utility for being a circular concept: "Utility is the ...
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2answers
491 views

Strongly and strictly increasing utility functions

What's the difference between Strongly and strictly increasing utility functions? What I know is that if $x'>>x $ where $x'$ has all elements strictly greater than $x$ then $U(x')>U(x)$, I ...
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1answer
40 views

Sunk cost fallacy- is it a bug or a feature?

I was having a conversation with a colleague regarding sunk costs, and discussion came up that the appeal of falling for the sunk cost fallacy might be a feature rather than a flaw, as it is behavior ...
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1answer
70 views

What does it mean to have a strictly increasing transformation in consumer theory? [closed]

We're discussing utility functions
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1answer
1k views

Whats the difference between local non-satiation and monotonicity?

Is there a practical difference between local non-satiation and montonicity? Can one exist in a utility function without the other?
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1answer
41 views

Income Elasticity and Convexity of Demand in Income

What needs to be true about the demand function $z(y)$, where $y$ is income, for the income elasticity $\varepsilon = \frac{dz(y)}{dy}/\frac{z(y)}{y}$ to be always greater than one (so that the good ...
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1answer
440 views

Deriving equation for income offer curve

Sorry if this is a basic question, however I have no idea on how to derive an equation for an income offer curve. All the explanations I'm getting is the graphical one where you just connect the ...
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0answers
51 views

Afriat's number

I discovered the Afriat's theorem on the possible rationalization of a given data set of demand observations and would like to ask for your help in understanding how to compute Afriat numbers in ...
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1answer
140 views

Slutsky Decomposition from Indirect Utility Function [closed]

Given the indirect utility function: V={M^2}/{4P1P2}, how do we establish the Slutsky Decomposition? I used Roy's Identity to get the Demand, but I'm stuck with the other components of the Slutsky ...
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19 views

Can the CPIH be used to find the real terms rise in price of a component of the basket of goods?

I want to calculate the real terms rise in UK private rent prices since 2011 using the CPIH measure. The indexes of nominal rent prices and the CPIH rose by 14.7% and 13.5% respectively, so I can say ...
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1answer
73 views

Consumer Utility Maximization equivalent of economies of scope

Economies of scope captures the idea of having efficiency in variety. I've come across this idea only in producer theory to capture the idea that companies may benefit from their ability to reduce ...
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3answers
292 views

modelling disutility from over consumption

In introductory economics courses the concept of marginal utility is illustrated through simple examples like how much benefit one gets from eating another slice of pizza (i.e first slice provides 100 ...
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76 views

Marginal propensity to consume and multiplier effect

Recently I had a conversation with a certain person (call her X) about the marginal propensity to consume (and about the multiplier effect). With marginal propensity to consume I mean $c_1$ as a part ...
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0answers
19 views

Model of sales of a new product

I am looking for any popular model to calculate sales of a new product under the assumption that some goodnesses of the product are given. For example, the novelty $N$ and usefulness $U$ of a new ...
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3answers
190 views

What do interest rates tell us about the state of an economy?

I seem to have a misconception about what interest rates mean. On one hand, they signal how high a government's demand for money is, because if a government is ever in any serious need of money, they ...
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1answer
411 views

Pure exchange economy with free and non-free disposal

Question is as follows: My answers are (I) Let k is constant utility level Then $$k=\sqrt{x_A^1x_A^2}$$ $$k^2/x_A^1=x_A^2$$ The first derivative is negative. So the indifference curve is ...
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1answer
188 views

Question on consumption theory

Question: What my did is I proceed this question until that point. But, I will be happy if help me to solve this question. Thank you.
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101 views

Natural borrowing/debt limit and other borrowing constraints

When confronted with the simple household consumption maximization problem under uncertainty (and with Arrow security sequential trading) $$\max_{\{c_t(s^t),a_{t+1}(s^t,s_{t+1})\}_{t=0}^{\infty}}\...