Questions tagged [consumer-theory]
the study of consumer choice and its fundamental underpinnings in preferences and constraints.
249
questions
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2answers
49 views
Indifference Curves and Preferences
Why are averages preferred to extremes on the same indifference curve? Doesn't everything along an indifference curve have the same preference?
1
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2answers
35 views
Difference between Engel curve and income expansion path
I was scrolling through many questions on this site about income offer path and it appeared to me that income offer path, income expansion path, engel curve all are different terms with same meaning, ...
4
votes
2answers
57 views
Set Theory Properties of the Budget Constraint
In Microeconomic theory, the budget constraint is defined by 4 distinct properties:
It is
Bounded
Closed
Convex
Non-empty
The 1. 2. and 4. are very straight forward and the benefits in terms of ...
1
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0answers
17 views
Difficulty Understanding CPI (Consumer Price Index)
Here's a question about CPI in my microeconomics text (Pindyck), which I don't seem to understand:
The price of computers has fallen substantially over the past two decades. Use this drop in price ...
2
votes
1answer
34 views
Opportunity Cost effect on benefits
My question is the following:
Let's say a person has two career choices. He would be succesful in both, but in one of them he is slightly better and thus he will do better. So let's say career A will ...
2
votes
2answers
92 views
Assumption of sufficient wealth in quasi-linear preferences
Whenever we talk about quasi-linear preferences, we assume that the consumer is sufficiently wealthy. As far as I understand is that we need that assumption in order to obtain an interior solution.
...
1
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1answer
62 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 ...
1
vote
1answer
38 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{\...
0
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2answers
54 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 ...
2
votes
1answer
35 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 ...
1
vote
1answer
42 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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0answers
19 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 ...
1
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0answers
46 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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0answers
32 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 ...
-2
votes
1answer
27 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.
1
vote
0answers
17 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 ...
2
votes
2answers
38 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
89 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
19 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
61 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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votes
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
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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
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1answer
75 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
45 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
423 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
96 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 ...
0
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0answers
267 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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votes
1answer
279 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
117 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
146 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
votes
1answer
39 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
68 views
Imperfect substitute
Perfect substitute- Pepsi and Coca-Cola and Imperfect substitute- Tea and Coffee . Here why tea and coffee considered imperfect substitute?
0
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2answers
216 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
142 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
42 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
168 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
217 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
598 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 ...
1
vote
1answer
42 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
118 views
What does it mean to have a strictly increasing transformation in consumer theory? [closed]
We're discussing utility functions
2
votes
1answer
2k 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
42 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
495 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
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0answers
54 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
148 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
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0answers
20 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
80 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
322 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
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0answers
81 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 ...
