Questions tagged [consumer-theory]

the study of consumer choice and its fundamental underpinnings in preferences and constraints.

229 questions
81 views

Comparing baskets of goods in this exercise

Max buys two goods, apple and ketchup. We do not observe his preference but we know it satisfies the three assumptions, completeness, transitivity, and more is better. And as usual, we know his ...
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Clearly explaining the concept of “normalizing” price and relative prices to undergraduate

I am trying to clearly explain to the concept of "normalization" or relative prices. Because students are so used to just think of prices in absolute terms, it is initially tough to make the leap to ...
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Modelling Supply Induced Demand

How would one go about modelling "supply induced demand" (SID) using the regular supply and demand model and how is SID different from price discrimination?
416 views

Consumer Theory (Finding demand functions)

Suppose that Sally’s preferences over baskets containing food (good $x$), and clothing (good $y$), are described by the utility function $u (x, y) = \sqrt{x} + y$. Sally’s corresponding marginal ...
222 views

Consumer Theory (Finding demand function) [closed]

Here's the question that I really need help with: $$U(x,y)=(x^{0.5})+y$$ $MUx=\frac{1}{2x^{0.5}}$ and $MUy=1$, where $x$ is food, $y$ is clothing $Px$ is the price of food, $Py$ is the price of ...
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How do you know if a good is a complement or a substitute from given demand and supply functions? [closed]

QD1 = 190 - 2P1 - 2P2 QS1 = - 10 + 2P1 QD2 = 240 - 2P1 - 4P2 QS2 = - 40 + P2 Are these goods substitutes or complements?
257 views

Negative consumer externality vs demerit good - what's the difference?

The example I was given for each was cigarettes. What market may have negative consumer externalities but is not a market for a demerit good? What is a type of demerit good that may not have a ...
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Is the study of the volunteer sector inappropriate for a labour economist?

In the basics of labour economics the driving factor for increase in labour supply (for the workers in a given market) is increase in wages. The volunteer sector consists of general and skilled ...
118 views

Teaching ethics and its Economic value

Is there any literature that considers the benefits of ethical behaviour or teachings in Economics in terms of its value added to human capital? If there is no difference in value added, then is ...
339 views

How to interpret income elasticity of demand

My question: Income elasticity of demand for apple is $\gamma$. Cross elasticity of demand between apple quantity and orange price is $\psi$, What is the impact on apple's revenue if consumers'...
294 views

Diminishing Nature of Utility Function From Convexity of Preference $\succsim$?

Is diminishing nature of utility function in consumer theory stemming from the assumption of convexity on the preference relation $\succsim$? My understanding is: $\succsim$ is convex. Then, $u(.)$...
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Linearity in Pricing and Duality, UMP EMP

I have read the statement below and don't quite understand what it means. This is probably because I don't have full understanding of duality with support function in math, but just to foster ...
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Weak Axiom of Revealed Preference

Maybe this is a well-known fact that I have somehow overlooked or forgotten etc., but I found myself curious recently if there are any conclusions about WARP holding over different dimensions for a ...
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Is it better for economic growth to invest in stocks or to purchase products?

I've recently been interested in economics and I admit that my understanding concerning it is limited. However my question is if investing in stocks is good for the economy. From my understanding, it ...
3k views

Why is MRS equal to Price ratio?

I've seen a derivation of MRS, but it's not immediately obvious to me why letting MRS equal to the price ratio of two goods will give you the solution to an optimization problem. Can anyone link me to ...
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What is the point of the indirect utility function?

Where does this have application? I understand how the demand function may be arrived at using the utility maximization problem but I don't understand where the indirect utility function is used and I ...
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Every continuous function has a max. on any compact set and Its Relevance to Consumer Theory

In the Intermediate Micro Course, we are asked to show the relevance for the consumer demand of the following: "every continuous function has a maximum value on any compact set" and I'm trying to ...
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Is MRS supposed to have a minus sign or not? What's there to say about convexity of preferences?

If we have a utility function $U(x_1, x_2) = x_1(x_2+1)^2$ of some consumer, then $$MRS_{x_1, x_2} = \frac{\color{red}{-}(x_2+1)}{2x_1}$$ Some books have a $\color{red}{-}$. Others and Wiki don't ...
I have the following demand equation system (expenditure ratio model): w_{clothes}= \beta _ {clothes} + \alpha_{clothes} * \ kids + (\gamma _{0.clothes} + \gamma _{1.clothes} * \ kids)* \ income + ... 1answer 62 views Are Preference Relations Robust to Aggregation This is more a question of putting the theory into practice, or at least clarifying the theory in practice. The question has to do with the application of preference relation axioms and aggregation. ... 1answer 234 views performance as utility function / price? I am trying to define a 'model' for the perceived performance of a product based on this definition: Presumably, customers take both price and quality into account as they form an overall ... 1answer 401 views Competitive equilibrium in Leontief economies Consider an economy in which all consumers have, possibly different, Leontief utilities. Since preferences are not strictly convex, it is not guaranteed that a competitive equilibrium exists. I found ... 1answer 217 views On closedness: commodity space In Intriligator (2002, p. 143) we find the following statement: \begin{align} C = \{(x_1,x_2,\ldots,x_n) : x_j \geq 0,~j=1,2,\ldots,n\} \subset [0,\infty)^n \end{align} Thus commodity space ... 0answers 386 views Utility function of a representative agent with quasilinear utility Consider an economy withn$consumers with an identical utility function, which is quasilinear in$x$: $$u_i(x,y) = x+u(y)$$ If we want to represent all consumers by a single representative ... 1answer 62 views Are these products substitutes or independent? A consumer's preferences are represented by the following utility function: $$u(x,y,m) = x+y+m$$ where$m$is money. Are the goods$x,y$substitute goods or independent goods? Microeconomic ... 1answer 336 views Do the partial derivatives of the compensated demand have an interpretation? When obtaining the Marshallian demand from a utility maximization problem we have a classification of normal goods, inferior goods, Giffen-goods, etc.. These are related to the first derivative of the ... 1answer 1k views Difference between 'ideal variety' and 'love of variety' - International trade What really is the difference between the "ideal variety" (Lancaster) of a differentiated product approach and the "love of variety" (Dixit and Stiglitz) approach? 1answer 269 views Demand function of a family Different family members have different utility functions, but All family members consume the same bundle. For example, consider a family$F$that has to select a bundle of funiture ($x$) and ... 2answers 259 views CES preferences intuition I asked this question on math.stackexchange but deleted it from there and brought it here. I had a question about Constant Elasticity of substitution type preferences of the form:$$U=\int_{0}^{1}(c(\... 0answers 283 views Constrained optimization for$u(x_1,x_2,x_3,x_4)=\alpha \min \{a x_1, b x_2\} + \beta \min \{c x_3, d x_4 \}\$ [duplicate]
Suppose preferences are represented by the following utility function $$u(x_1,x_2,x_3,x_4)=\alpha \min \{a x_1, b x_2\} + \beta \min \{c x_3, d x_4 \}$$ Write the ...