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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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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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Could an economy based on paying after use be viable [on hold]

I recently thought about the fact that a lot of people are not actually paying for some cultural stuff like video games or movies. So i wondered if paying after seeing a movie or playing a video game ...
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1answer
22 views

Slutsky Decomposition from Indirect Utility Function [on hold]

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
20 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 ...
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3answers
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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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16 views

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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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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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
16 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
58 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
181 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
131 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
28 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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1answer
82 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 ...
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1answer
47 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
99 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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0answers
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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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1answer
132 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 ...
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2answers
127 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
281 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
72 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 ...
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1answer
85 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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2answers
45 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
27 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
53 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
24 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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156 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 ...
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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 ...
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107 views

MWG Example 3.E.1

I do not understand how Mas-Collel, Whinston, and Green derive the Hicksian demand functions in Example 3.E.1 in their textbook. Allow me to give further background regarding the problem: The ...
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1answer
121 views

Bliss point utility doubt

Why is the bliss point utility function convex even though it has concave portions to it ? According to Nicholson and Snyder (authors of Microeconomic theory - Basic principles and extensions) a ...
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0answers
118 views

Consumer surplus from a Hicksian demand curve: what is it?

A Hicksian demand curve indicates how much of a good will be demanded given price holding level of overall utility fixed. When in equilibrium with a supply curve we end up with this area we would ...
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2answers
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what is consumer surplus practically?

In Microeconomics producer surplus is equivalent to profits. However getting a tangible definition of consumer surplus has been difficult for me to ponder. What is the practical use of knowing ...
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1answer
178 views

Intuition for why $EV>CV$ for a normal good

I understand the mathematical proof and the graphical illustration behind this property ($EV>CV$ for the variation in the price of a normal good), but I still do not understand the economic ...
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2answers
107 views

Does consumer theory assume that utility functions are consistent overtime?

I'm interested in how we model a consumer with a changing utility function over time. Example: an individual's demand for candy/sweets at 10 years of age will be different when he is 20,30 or 40 ...
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2answers
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Consumer behavior with constrained demand

Suppose there is a linear demand function $D(p)$ describing the demand of an individual consumer. This is derived from a utility function or is just observed, but let us assume it is correct. Now ...
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2answers
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If the (direct) utility is concave in all goods, is the indirect utility necessarily concave in wealth?

Suppose that the direct utility $u(x_1,...,x_n)$ is concave in each of its arguments. Does this imply that the indirect utility $U(w,p)$ is concave with respect to $w$? If all goods are normal than ...
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1answer
631 views

Homogenous of degree one in utility function.

Question My solution is as follows. Please check my solution. If I make a mistake, please tell. I am really not sure about my solution. Thank you U(x) is homogenous of degree one i.e. u(...
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1answer
137 views

Empty edgeworth box [closed]

Can a empty edgeworth box be a pareto set? What kind of economy would be describe in this situation?
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Could be this picture be interpreteded as a pareto set? [closed]

Hi, is there a way to interpret this picture as a Pareto set? What assumptions are necessary for such an interpretation?
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2answers
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Why does local non satiation imply the constraint is binding?

Local non satiation says that for any $x \in X$ and $\epsilon > 0$, there exists $y \in X$ such that $d(x,y) < \epsilon$ and $U(x) < U(y)$. I don't understand why this implies that $px^* = m$...
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Euler equation - Intuition behind setting $\beta(1+r)=1$ if the economy is closed

The Euler equation is: $$u(C_{t})=\beta(1+r)U(C_{t+1})$$ In my lecture notes, I noted that my prof. said something like: Since our economy is closed, we are going to assume that $\beta(1+r)=1$ ...
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1answer
439 views

Explaining why Hicksian demand is more inelastic to intermediate micro student

How would you best explain to a student in intermediate micro class that the Hicksian demand for a normal good is more inelastic than the Walrasian demand without heavy differential calculus? When I ...