# Questions tagged [consumer-theory]

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

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### How to mathematically denote that a consumer behaves according to their preference structure at every point in time?

As the title says, I would like to mathematically denote that a consumer behaves according to their preference structure at every time $t$, $t+1$, $t+2$ and so on in a finite consumption set $X$, by ...
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### How useful are basic economics (elasticity / consumer & producer theory) in real life?

I am thinking how these concepts will be applied in the industries / at a job. For example I could see elasticity as useful in projecting the outcomes of supply ...
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1 vote
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### Expected utility function and Full insurance

Bob is an expected utility maximizer with utility function $u(x) = −e^{−ax}$, where $a > 0$ is a parameter. Bob has wealth $w$. There are two states of the world, a good state and a bad state. The ...
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### Indifference curve in income and substitution effects

i have this task: "Mary spends her totally daily budget (30 euro) for chocolate and cakes. The price of chocolate bar is 5 euro and price of slice of cake is 2 euro. Now the price of slice of ...
1 vote
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### budget line for ration quota

In this situation there is a particular commodity, like rice, is both available at a subsidized rate from a fair price shop (ration shop) and at a higher price from the open market. Suppose a consumer ...
1 vote
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### Data-driven vs. theory-driven demand system estimation

Context: When one wants to study consumer demand based on observational data (e.g. household survey data), imposing theoretical restrictions on the coefficients of the demand model seems to be a good ...
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### What utility function represents an agent with a time-discount factor?

Consider an agent who has a fixed budget, and should decide how to split it between consumption today and consumption tomorrow. For simplicity, suppose there is no interest, and no borrowing/lending, ...
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### Solve for the Walrasian demand, Utility of three variables, and Convexity of Preferences?

I am given $U(x,y,z) = x^\frac{2}{3}y^\frac{1}{3} + z$. I am asked to solve the following: (i) Prove the convexity of these preferences (convex, strictly convex or neither?) (ii) Solve for the ...
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1 vote
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### MRS not invariant under monotonic transformation

Consider U(x, y) = ln(x)ln(y). Is it quasi-linear? My response was no, since applying an exponential would yield exp(ln(x)ln(y))= exp(ln(x+y)) = x+y. However, the original MRS was (y/x)(ln(y)/ln(x)). ...
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### Violation of Monotonicity of preferences

Hi I am reading Jehle and Reny in my master's course and I have come across a problem in one of the exercises. My instructor herself was a bit confused when a student gave her a counter-example and ...
1 vote
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### Binary choices in consumer theory

Back when I was a teaching assistant, we were teaching utility theory and how it relates to price determination. So we were looking at continuous goods (e.g. "food") so as to get marginal ...
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1 vote
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### Graphing indifference curves to visualize solutions?

I am having trouble with being able to graph indifference curves. This is a particularly important skill to have especially when trying to visualize corner solutions, and when the Lagrangian method ...
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1 vote
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### Marshallian demand for Cobb douglas function [closed]

would like to just check how one can obtain the Marshallian demand for Cobb Douglas function such as u(x1,x2) = x1^a x2^(1-a) ? Was attempting the question but got somewhat stuck trying to ...
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### Proving local non-satiation in arbitrary metric space

I have a pure exchange economy where every consumption set $X_i$ is non-empty and convex and every preference relation $\succeq_{i}$ is strictly convex. I am asked to show that preferences are locally ...
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### How come a representative consumer with quasilinear utility need not economize?

Suppose a representative consumer has the following quasilinear utility function: U_i(x_1,x_2)=ax_1+ax_2-(1/2)*[(x_1)^2+(x_2)^2] + k where a>0 is a utility parameter, x_1 and x_2 are the goods, and ...
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### Why do companies and stores never seem to take into consideration the fact that few people want ugly colours of the same product?

In 1997, I traveled far and wide to hunt down an original Tamagotchi. Whereas everyone else had one of the numerous clones, often with many more features, I had to have the real Tamagotchi. When I ...
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### Are the goods in additively separable utility functions normal goods?

Inspired by this answer. To make it a bit more precise, by normal good I mean demand is (not necessarily strictly) increasing in income, and by additively separable utility function I mean that a ...
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### If I had a new economical theory, how could I share it with academical environments? I call it “algorythmic economy”

If I had a new economical theory, how could I share it with academical environments? I call it algorythmic economy. I have made this same question on Quora. https://www.quora.com/unanswered/If-I-had-a-...
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### How to derive consumer expenditures in EMEA 14.2.5

I am working on a problem 14.2.5 from EMEA by Sydsaeter, Hammond and Strom. Consider the consumer demand problem:  \max_{x,y} U(x,y) = \alpha \ln(x-a) + \beta \ln(y-b) \text{ s.t. } px+qy=m \tag{*} ...
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### Is an income tax always more favourable for consumers compared to ad valorem/quantity tax?

I'm studying the optimal choice of consumers with regards to taxation. I read that for consumers, income tax is generally (for Cobb-Douglas preferences) preferred compared to ad valorem tax: If the ...
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### Approaches in demand analysis

What is the difference between Engel Curve and the system approach of demand analysis?
1 vote
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### Demand function for partially subsumable products

I am struggling with this question that should be simple for economists (I am not an economist at all): There is a market with a limited number of (heterogenous) consumers with two firms, each ...
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### Interior Solution for profit maximisation problem

A function $c: \mathbb{R}^K_+ \xrightarrow{} \mathbb{R}_+$ is is said to be a cost function if The value of function $c$ at $y = \textbf{0}$ is $0$: $c(\textbf{0}) = 0$ $c$ is continuous on the ...
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### Looking for an universal utility function

I'm trying to build a computer simulation of an economy which separate simulation for each household and I'm trying to figure out what utility function should I use to model the households behavior. I ...
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### What does price embody ? Do we constantly undervalue some type of products?

I'm not sure to fully get the meaning of prices. If I understand well, there are two drivers of it : The theory of demand and supply and thus prices are driven partly by the utility that agents get ...
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### Does Modern Monetary Theory (MMT) provide a useful insight into how to manage the economy?

According to advocates of [Modern Monetary Theory][MMT] (MMT), the primary risk once the economy reaches full employment is inflation, which can be addressed by gathering taxes to reduce the spending ...
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