Questions tagged [consumer-theory]
the study of consumer choice and its fundamental underpinnings in preferences and constraints.
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1answer
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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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1answer
37 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
24 views
Consumer behaviour
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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0answers
21 views
Consumer's satisfaction level
If we increase quantity of a commodity or a good will consumer's satisfaction level increase? Here the quantity is NOT CONSUMED by consumer but if he purchase a good more and more of a same commodity ...
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1answer
19 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
61 views
feature of indifference curve
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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0answers
23 views
Indifference curve for one commodity? [on hold]
"If money is taken on Y-axis, then IC curve can touch oy-axis" here we have taken 'money' on Y-axis and 'commodity' on X-axis. Here my doubt is could we use indifference curve for one commodity? If so ...
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1answer
35 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
28 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
35 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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0answers
9 views
Implications of CES on changes in demand
I have a CES utility function, in my class notes I have remark that when the CES is constant and less than one the demand in absolute terms remains unchanged when price of second commodity changes.
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2answers
84 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
109 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
32 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
21 views
What does it mean to have a strictly increasing transformation in consumer theory? [closed]
We're discussing utility functions
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1answer
415 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
30 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
149 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
39 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
72 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
17 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
55 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
95 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 ...
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0answers
21 views
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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0answers
41 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 ...
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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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3answers
100 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 ...
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1answer
276 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
154 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
54 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)
$$\max_{\{c_t(s^t),a_{t+1}(s^t,s_{t+1})\}_{t=0}^{\infty}}\...
5
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1answer
86 views
Utility Maximisation Subject to Income and Time Constraints
The consumption of economic goods often takes time. Consider, for example:
Transport services, eg flights, rail journeys;
Leisure goods, eg watching a film, visiting a park.
I would like to explore ...
5
votes
1answer
279 views
Money Metric Utility Function: Budget constraints become Utility Functions?
Im currently reading up on the "money metric utility function" (also known as the minimum income function or direct compensation function).
By definition it is defined as:
$$m(\text{p},\text{x})\...
1
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1answer
122 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
188 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 ...
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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$$c_i^{1-a}$, where c_i is the consumption and $s_i$ is social interaction. $s_i$ is given by :
$s_i$ = $t_i$ + ...
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1answer
643 views
Inferior and normal good and the change in price of those goods
In general, We know that if a good is normal, then as your income increases, then demand of that good increases as well as price is fixed. Similarly, if a good is inferior, then as your income ...
2
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2answers
324 views
Show that First order conditions are necessary and sufficient for utility maximization
I have a budget set
$$B=\{x=(x_1,x_2)\in R^2_+ \mid 2\sqrt{x_1}+x_2\le y\}$$
where $y>0$ is income.
Assuming the preferences are strictly monotonic and convex, I want to show that first order ...
3
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1answer
340 views
Optimization problem with Kuhn-Tucker conditions
Consider a game with two players where each player $i=1,2$ has preferences $u_i=s_i^a c_i^{1−a}$, where $c_i$ is consumption and $s_i$ is social interaction. $s_i$ is given by $s_i=t_i+t_{ij}\times t_{...
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1answer
82 views
Kuhn Tucker optimization problem
Assume that the player I select $x_i \ge 0$ at constant cost level $c>0$
The payoff function for player i is
$$v(x_i,t)-cx_i$$
where $t$ is technology parameter.
The function v(.)is twice ...
2
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1answer
89 views
How to write budget constraint if the agent sell the goods that buy
Della’s utility is $U(G,R)$
G is the consumption of gasoline per week
R is the the consumption of other goods
Just help me to write down budget constraint.
I think that
$$R*1+(G-20)*10+20*1=...
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0answers
18 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
64 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 ...
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1answer
29 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
35 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 ...
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2answers
67 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 ...
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1answer
33 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
69 views
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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0answers
53 views
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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0answers
22 views
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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0answers
213 views
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 ...
