Questions tagged [consumer-theory]
the study of consumer choice and its fundamental underpinnings in preferences and constraints.
0
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0answers
35 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
...
2
votes
2answers
27 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 ...
2
votes
3answers
74 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 ...
2
votes
1answer
15 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 ...
0
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0answers
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 ...
4
votes
1answer
55 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 $b$, ...
-3
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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 ...
0
votes
0answers
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 ...
0
votes
1answer
47 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 ...
0
votes
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 ...
2
votes
1answer
173 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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0answers
56 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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0answers
142 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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1answer
144 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 ...
1
vote
1answer
71 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 ...
3
votes
2answers
130 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 ...
0
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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 ...
0
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1answer
47 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
144 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 ...
0
votes
1answer
63 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 ...
1
vote
2answers
37 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 ...
2
votes
1answer
124 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 ...
4
votes
2answers
167 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 ...
2
votes
2answers
417 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 ...
0
votes
1answer
38 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 ...
0
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1answer
54 views
What does it mean to have a strictly increasing transformation in consumer theory? [closed]
We're discussing utility functions
2
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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?
0
votes
1answer
37 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 ...
0
votes
1answer
405 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 ...
2
votes
0answers
46 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 ...
0
votes
1answer
126 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 ...
1
vote
0answers
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 ...
2
votes
1answer
67 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 ...
3
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3answers
203 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 ...
2
votes
0answers
74 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 ...
1
vote
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 ...
0
votes
3answers
174 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 ...
1
vote
1answer
380 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 ...
0
votes
1answer
173 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.
1
vote
0answers
95 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)
$$\max_{\{c_t(s^t),a_{t+1}(s^t,s_{t+1})\}_{t=0}^{\infty}}\...
5
votes
1answer
100 views
Utility Maximisation Subject to Income and Time Constraints
The consumption of economic goods often takes time. Consider, for example:
Transport services, eg flights, rail journeys;
Leisure goods, eg watching a film, visiting a park.
I would like to explore ...
5
votes
1answer
596 views
Money Metric Utility Function: Budget constraints become Utility Functions?
Im currently reading up on the "money metric utility function" (also known as the minimum income function or direct compensation function).
By definition it is defined as:
$$m(\text{p},\text{x})\...
1
vote
1answer
146 views
Maximization with disposable income
Consider a welfare system u dear which a single cash transfer(guaranteed income ) is given to every citizen. Then for each dollar the person earns the payment is reduced to by a where 00 you get a ...
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votes
1answer
198 views
Question on consumer theory
The story of my question is
I have multiple question.
(1) when John doesn’t work in the underground economy at all , t=0, how can I find the optimal value of $l$ and consumption bundle and his ...
1
vote
0answers
83 views
Kuhn Tucker optimization problem and game theory [duplicate]
Consider a game with two players, where each player i= 1 ,2 has preferences $u_i$= $s_i^a$$c_i^{1-a}$, where c_i is the consumption and $s_i$ is social interaction. $s_i$ is given by :
$s_i$ = $t_i$ + ...
-1
votes
1answer
1k views
Inferior and normal good and the change in price of those goods
In general, We know that if a good is normal, then as your income increases, then demand of that good increases as well as price is fixed. Similarly, if a good is inferior, then as your income ...
2
votes
2answers
562 views
Show that First order conditions are necessary and sufficient for utility maximization
I have a budget set
$$B=\{x=(x_1,x_2)\in R^2_+ \mid 2\sqrt{x_1}+x_2\le y\}$$
where $y>0$ is income.
Assuming the preferences are strictly monotonic and convex, I want to show that first order ...
3
votes
1answer
378 views
Optimization problem with Kuhn-Tucker conditions
Consider a game with two players where each player $i=1,2$ has preferences $u_i=s_i^a c_i^{1−a}$, where $c_i$ is consumption and $s_i$ is social interaction. $s_i$ is given by $s_i=t_i+t_{ij}\times t_{...
1
vote
1answer
113 views
Kuhn Tucker optimization problem
Assume that the player I select $x_i \ge 0$ at constant cost level $c>0$
The payoff function for player i is
$$v(x_i,t)-cx_i$$
where $t$ is technology parameter.
The function v(.)is twice ...
2
votes
1answer
108 views
How to write budget constraint if the agent sell the goods that buy
Della’s utility is $U(G,R)$
G is the consumption of gasoline per week
R is the the consumption of other goods
Just help me to write down budget constraint.
I think that
$$R*1+(G-20)*10+20*1=...
