Questions tagged [consumer-theory]
the study of consumer choice and its fundamental underpinnings in preferences and constraints.
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0answers
22 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
31 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
37 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 ...
-1
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0answers
26 views
Implications of homogeneity of degree zero in the Walrasian demand function
Mas Colell, Winston and Green's Microeconomic Theory (3rd edition) has the following proposition (2.E.1):
What is its proof?
Definition of homogeneity of degree zero:
Notation:
$D$: Derivative ...
2
votes
1answer
60 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
26 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
67 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
69 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
54 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
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2answers
122 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
33 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
119 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
45 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
34 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
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1answer
79 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
138 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
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2answers
298 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
36 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
27 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
796 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
33 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
295 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
42 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
108 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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0answers
18 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
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1answer
57 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
153 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
55 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
17 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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votes
3answers
122 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
353 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
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1answer
167 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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0answers
78 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)
$$\max_{\{c_t(s^t),a_{t+1}(s^t,s_{t+1})\}_{t=0}^{\infty}}\...
5
votes
1answer
92 views
Utility Maximisation Subject to Income and Time Constraints
The consumption of economic goods often takes time. Consider, for example:
Transport services, eg flights, rail journeys;
Leisure goods, eg watching a film, visiting a park.
I would like to explore ...
5
votes
1answer
479 views
Money Metric Utility Function: Budget constraints become Utility Functions?
Im currently reading up on the "money metric utility function" (also known as the minimum income function or direct compensation function).
By definition it is defined as:
$$m(\text{p},\text{x})\...
1
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1answer
136 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
191 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
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0answers
81 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$$c_i^{1-a}$, where c_i is the consumption and $s_i$ is social interaction. $s_i$ is given by :
$s_i$ = $t_i$ + ...
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1answer
1k views
Inferior and normal good and the change in price of those goods
In general, We know that if a good is normal, then as your income increases, then demand of that good increases as well as price is fixed. Similarly, if a good is inferior, then as your income ...
2
votes
2answers
459 views
Show that First order conditions are necessary and sufficient for utility maximization
I have a budget set
$$B=\{x=(x_1,x_2)\in R^2_+ \mid 2\sqrt{x_1}+x_2\le y\}$$
where $y>0$ is income.
Assuming the preferences are strictly monotonic and convex, I want to show that first order ...
3
votes
1answer
368 views
Optimization problem with Kuhn-Tucker conditions
Consider a game with two players where each player $i=1,2$ has preferences $u_i=s_i^a c_i^{1−a}$, where $c_i$ is consumption and $s_i$ is social interaction. $s_i$ is given by $s_i=t_i+t_{ij}\times t_{...
1
vote
1answer
101 views
Kuhn Tucker optimization problem
Assume that the player I select $x_i \ge 0$ at constant cost level $c>0$
The payoff function for player i is
$$v(x_i,t)-cx_i$$
where $t$ is technology parameter.
The function v(.)is twice ...
2
votes
1answer
101 views
How to write budget constraint if the agent sell the goods that buy
Della’s utility is $U(G,R)$
G is the consumption of gasoline per week
R is the the consumption of other goods
Just help me to write down budget constraint.
I think that
$$R*1+(G-20)*10+20*1=...
0
votes
0answers
19 views
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
69 views
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 ...
3
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1answer
30 views
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
37 views
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 ...
1
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2answers
69 views
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 ...
1
vote
1answer
36 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.
