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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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64 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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0answers
159 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
203 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
174 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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4answers
200 views

what is consumer surplus practically?

In Microeconomics producer surplus is equivalent to profits minus fixed costs. However getting a tangible definition of consumer surplus has been difficult for me to ponder. What is the practical ...
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1answer
502 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
272 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
70 views

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
123 views

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
2k 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
169 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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0answers
54 views

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
2k views

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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339 views

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
863 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 ...
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0answers
130 views

Non-linear budget constraints written as union/intersection of linear budget constraints

Let $w$ denote wage. Let the price of each unit of food be $p_1$, the price of the first $M$ units of electricity be $p_2$ and the price of each unit of electricity over $M$ units is $q_2$. $M$ is ...
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3answers
5k views

What is a rational consumer?

There is a lot of debate on whether or not consumers and investors are rational. Unfortunately, I haven't seen much qualification for what is called a rational consumer. What are the requirements ...
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1answer
2k views

Are Cobb-Douglas preferences homothetic?

Our lecture defined a preference to be homothetic, if the following is true: $$(x_1, x_2) \thicksim (y_1, y_2) \Leftrightarrow (kx_1, kx_2) \thicksim (ky_1, ky_2)$$ Cobb-Douglas preferences can be ...
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1answer
91 views

Consumer Econometrics: Identifying nature of goods

I have some data on household income and goods purchased. The first three columns and rows are: ...
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1answer
58 views

CARA Coefficient Calculation

Consider the following scenario: A consumer with CARA (constant absolute risk aversion) claims that she is indifferent between "getting $2400 for sure" and "getting $5000 or $0, each with 50% ...
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1answer
1k views

Link between elasticity and marginal utility

The above is taken from "Economics" 8th Edition by John Sloman, a textbook commonly used at the introductory undergraduate level. I would like assistance in understanding the bracketed portion - how ...
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2answers
50 views

Driving down the price of a good

I've been thinking about this situation lately: A normal good $x$'s price has become unreasonably high. Would it be a good idea for consumers to boycott (i.e. stop buying) $x$ in order to drive down ...
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1answer
331 views

Help with CES Utility Function exercise

I am attempting to solve the following CES Utility Function problem: However, I am running into issues when I get to 3). For 1) I have $K = \left(\frac{\omega p_1}{p_2}\right)^{\frac{1}{p+1}}$ ...
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0answers
341 views

Calculus and Indifference Curves in an Urban Economics Example

I am reading the paper 'The Structure of Urban Equilibria' by Jan Brueckner. It uses a monocentric city model, where all consumers earn income $y$ at the centre of the city. They buy $q$ housing for ...
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2answers
733 views

Meaning of Additively Separable, Linear in X

Often I see both in micro and macro two common terminology : Additively separable. Linear in price or linear in probability. I understand exactly as they sound by looking at the functional form ...
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1answer
105 views

Example in which revealed preference doesn't imply preference

I'm studying Varian's Intermediate Microeconomics, in which the principle of revealed principle is stated as follows (for now we're assuming strictly convex indifference curves): Let $(x_1, x_2)$ be ...
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1answer
1k views

Are lexicographic preferences strictly monotonic?

I'm a bit confused about lexicographic preferences and whether they abide by the strict monotonicity axiom. The definition we were given for strict monotonicity is: For any two bundles $x$ and $y$,...
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2answers
573 views

Lancaster's Characteristics Theory

In 1966 Kevin Lancaster proposed a new Economic Theory based on product characteristics instead of product utility. I would like to know the status of this theory nowadays among economists ...
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2answers
3k views

Relation between linear utility function and U=max{x,y}

I'm studying general equilibrium theory, and in the study guide I came across a utility function of the type $U=\max\{x,y\}$, which I'm not that familiar with. I study mainly from two books: ...
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1answer
103 views

How do we estimate utility functions?

Throughout the course load of an economics student's undergrad we are exposed to the concept of cardinal utility via utility functions which give us a specific quantifiable number of "utilis" as a ...
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2answers
2k views

Optimal decision for perfect substitutes utility function ?

Given $u(x_1,x_2)=4x_1+14x_2$ and $m=\frac{1}{2}x_1+\frac{3}{2}x_2$, I shall choose the optimal decision among: $a)(2m,\frac{2m}{3})$ $b)(2m,0)$ $c)(\frac{m}{2},0)$ $d)(0,\frac{2m}{...
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1answer
30 views

Economic concept where turning something down heightens emotional attachment

For example, say a person has turned down an offer for a competing position with another company. That person now has an increased sense of attachment to their current position with the logic "I ...
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1answer
118 views

Effects of shocking budget or indifference curves on optimum point?

I am supposed to determine if shocking either the income or preferences would certainly change the optimum solution in case of a corner solution?
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1answer
393 views

Verification of understanding of the substitution and income effect of normal, inferior and Giffen goods?

My understanding is as follows: Normal Goods: Income and Substitution effects are both positive. Inferior Goods: Income effect negative, substitution effect positive. Substitution effect outweighs ...
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1answer
294 views

How do I represent this indifference curve graphically?

I am not able to visualize this indifference curve. I consume only two goods: sugar and milk. I will prefer a bundle X of sugar and milk over a bundle Y only if $x_{sugar} > y_{sugar}$, and $x_{...
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1answer
121 views

Utility Maximization [closed]

Assume the utility function is $u(x,y,z)=y*min[x,z]$. The prices of all three goods are equal. The agent has an amount $M$ to spend on the goods. He has to choose one of the following schemes: A) Get ...
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2answers
216 views

Research Design: Indifference curves and budget lines

I have a basic Idea on how to construct indifference curves such that we must use two goods and then ask for pairs of bundles which are preference indifferent. When doing applied research on ...
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1answer
74 views

Research on the existence of utility functions?

I've been having difficulty finding some research on indifference curves/utility functions and methods in constructing them in an applied manner. Does anyone have any papers or pdf books to ...
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2answers
24k views

Determining optimal consumption bundle [closed]

The utility function of the consumer is $5x^{0.5}y^{0.5}$ The income of the consumer is $5000$ The price of good $x$ is $1,000$ and the price of good $y$ is $500$. Determine the optimal ...
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1answer
291 views

What consumer preferences exhaust the budget?

Suppose that a consumer has a complete and transitive preference relation over R+. Further suppose that the consumer faces prices p = (p1,p2,...,p) 0 and has ...
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2answers
68 views

Economic Confirmation Biases

I'm not sure if this is the right place to post this, since my question is a bit more general to all of social sciences (indeed sciences in general), but I figured since Economics is a social science ...
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1answer
2k views

Why is EV<CV if the good is inferior?

Through the Slutsky equation I know that if the good is inferior the marshallian demand function is steeper than the hicksian demand but I cannot understand why the Compensating variation is higher ...
10
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2answers
660 views

Thin indifference curves

If a consumer follows the rationality axiom of continuity (i.e. no jumps in his preferences), the indifference curves of a utility function are said to be thin. Why does continuity ($x \succeq y \...
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1answer
107 views

Suppose I have a preference satisfy all basic assumptions, how to show consumer problem solution is unique

The preferences are complete, transitive, continuous, strictly monotone and strictly convex The textbook says it is because (1) Budget Set is compact so that a solution exists; (2) B is convex and ...
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1answer
781 views

Utility function used to indicate bliss point

How does one create a utility function to indicate existence of a bliss point? what do the goods marshillian demands look like in such a situation?
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1answer
25 views

Recommended ratio of sells of software of basic and advance edition

Our company is selling one software in two edition: - cheap one with basic features - expensive one with basic and advance features According to sells statistic, more than 90% of people are buying ...
3
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1answer
154 views

Consumer demand: a function of present endowment?

I don't know about you, but each time I go shopping for groceries, my purchasing decision takes into account what I already have at home. I don't make only one demand decision for my entire life the ...
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1answer
141 views

Optimal consumtion bundle of lemons and sugar [closed]

Alex consumes only lemons and sugar. For each lemon he requires exactly 2 spoons of sugar. He doesn't like more sugar on his lemons, and he won't eat lemons with less sugar. What is Alex's optimal ...
3
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1answer
688 views

More direct way to derive indirect utility function from expenditure function

I have this general form for a expenditure function $e(p,u)=f(u)\cdot g(p)$ where $f(u)$ is increasing monotonic. How can I derive a functional form for an indirect utility function from this ...
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2answers
93 views

Can there be sensible choice behavior that violates the Weak Axiom of Revealed Preference?

Following the notation of Mas-Collel, Whinston, and Green, consider a family of budget sets $\mathcal{B}=\{\{x,y\},\{x,y,z\}\}$. To make the example concrete, let's let $x$ be a book $y$ be a left ...