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Questions tagged [consumer-theory]

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

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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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First Order Condition - Farm Household Model

Does anyone can help me solve this simple farm household model from the Paper "Delinking land rights from land use: Certification and migration in Mexico" De Janvry 2015. When I do $\frac{dU}{dhe}$ ...
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Marshallian demand derivatives

Hicksian demand derivative is often used to define complements and substitutes. Is it possible to use Marshallian demand derivatives to define complements and substitutes?
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1answer
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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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how to draw indifference curve of combination utility function

Given Utility function is U(x1,x2)= Max{0.5x1,0.5x2} + Min{x1,x2} with utility level 30. how to draw the indifference curve?
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1answer
29 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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Imperfect complement indifference curve

Although I've seen many resources about perfect complements, haven't found anything for imperfect ones. Suppose that with x1 and x2, x2 is used only when there are equal amounts of x1. Any excess of ...
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1answer
200 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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Does pareto efficiency implies that aggregate profits are maximized?

Does stating that a contract results in a Pareto efficient allocation imply that aggregate profits are maximized? I believe that the answer is false, but can't seem to come up with a counterexample.
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Expected utility theory

I allow myself to write to you today, being stuck on a problem related to the Expected utility function properties. The problem is the following: A) Let X be a finite set. Suppose >~ is a binary ...
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1answer
28 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
62 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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How to find cross price elasticity of demand in case of two perfect substitutes? Please give a mathematical intuition

I saw somewhere that Cross price elasticity of demand in case of perfect substitutes is $\infty$. I do not think that this is right in all the cases. Even if it is, please give a mathematical ...
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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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Consumer Theory - Utility / Costs / Preference

I have the following question: Violet buys two goods, toys and pens. We do not observe her preference but we know it satisfies the three assumptions, completeness, transitivity, and more is better. ...
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1answer
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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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In what ways is the e-commerce industry imperfectly competitive?

When it comes to the e-commerce industry, what are the aspects to consider or areas to explore? I am mostly asking in relation to amazon. And wanted to get some "expert opinion" of course expert does ...
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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
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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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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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Relation between Epstein Zin and Power Utility

I found this graph in Campbell and Viceira 2001 at page 35-36 (https://faculty.fuqua.duke.edu/~charvey/Teaching/BA453_2006/Campbell_Viceira.pdf) which is used to explain the relation between Epstein-...
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Determine the range for the amount demanded

A consumer consumes two (and only two) goods A and B. Both goods are ìgoodî in the sense that more of either is strictly better. The consumerís preferences are well-behaved (complete, transitive, ...
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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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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
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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
239 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
148 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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37 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}}\...
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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 ...
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1answer
151 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})\...
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1answer
118 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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1answer
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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 ...
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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 : $s_i$ = $t_i$ + ...
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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 ...
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2answers
226 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 ...
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1answer
325 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_{...
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1answer
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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 ...
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1answer
88 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=...
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Do ads work for businesses as they used to and how can they be measured if it's possible?

The gist of Seth Godin's 'Purple Cow' is that advertisements don't work any more. As marketers, we know the old stuff isn't working. And we know why: because as consumers, we're too busy to pay ...
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3answers
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In Supply and Demand is Quantity the Amount of Inventory of the Amount of Units Sold?

I am new to economics in school and we are going over supply and demand. This may sound like a very simple question, but I just need one thing clarified. When quantity is mentioned in the graphs is ...
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1answer
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Reference Request on consumer theory

I am looking for a recent literature review of consumer demand theory and its empirical applications. I have tried common places (google scholar, jel and jep papers) but no success. Any help is really ...
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1answer
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Will a consumer be more, or less willing to give up a commodity (for the other) for which they have been substituting another? [closed]

Statement: "Indifference curve analysis is based on the assumption of diminishing marginal rate of substitutiins. This means that as the consumer substitutes more and more of one commodity (say X) for ...
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2answers
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How can I motivate a dynamic model using utility and consumer preference where only one good is affected by past consumption?

I've been looking how I can motivate the model I want to estimate using a utility optimization framework. Basically, I want to write a model using two goods: x and y, in two periods: 1 and 2, where ...
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1answer
31 views

Show that strict preference ordering is not reflexive

How do i show that the strict preference (>) ordering is not reflexive. I've tried to prove this by asymmetry but I am not sure this is the way to do it. Any help? Thank You.
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1answer
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Utility Functions: Implying endless consumption?

Do utility functions imply that if a consumer's income infinite, his consumption should also be infinite? The reason why I'd think this is the case is based on my basic understanding of utility ...
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Econometric estimation of Engel curves (or demand?)

The problem is the following: Data is a family survey of expenditures on commodity groups. An exercise told I should estimate the next equation: $$w_{j}=ß_{j}+\gamma_{j}log(cons)+a_{j}z+u_{i} $$ ...
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Where does a monopsonist consume?

The classic formula for where a monopolist produces is where marginal revenue equals marginal cost. Is there a similar formula for a monsopsonist?
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Why or when does the area under the demand curve equals the total utility for consumers (perfect competition)?

Why or when does the area under the demand curve equals the total utility for consumers (perfect competition)? From the demand side, one knows that when combining the utility function and the budget ...
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1answer
63 views

Has any person ever actually planned his or her consumption according to Modigliani’s LCH?

https://en.wikipedia.org/wiki/Life-cycle_hypothesis?wprov=sfti1 It seems self-evident to me that nobody on Earth actually does this. Real people are short-sighted, undisciplined, and lack the ...