# Questions tagged [consumer-theory]

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

229 questions
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### Why does Slutsky compensation “overcompensate” the consumer?

Suppose I have a Marshallian demand function $x_M(p_x^0,p_y,m^0)$. As I understand it, Slutsky compensation is defined as $$T_S = \Delta p_x \cdot x_M(p_x^0,p_y,m^0)$$ Can someone explain why this ...
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### Are Cobb Douglas goods complements or substitutes?

Given $$U(x,y)= x^\alpha y^{1-\alpha}$$ $\alpha \in (0,1)$, are Cobb Douglas goods (here $x$ and $y$) complements, substitutes, or neither? Why? An explanation with mixed partial derivatives would ...
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### Confusion about the EMP approach to perfect complements. Solved UMP but struggling with EMP

I have successfully done the UMP for perfect complements. I got $$x^* = y^* = \frac{m}{p_x +p_y}$$ This makes intuitive sense because for whichever good I have the least of, I don't want to buy ...
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### Why isn't the Law of Demand true for Marshallian demand?

My professor said, in practice, Marshallian demand follows the law of demand (ie that increase in price decreases demand). But he said in theory, the Marshallian case is ambiguous and it does not ...
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Walras has available 24 hours per day. He has to alloacate this 24 hours between leisure $(L)$ and work. His utility function depends on leisure and the composite good $(C)$ and is given by $U=LC$. ...
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### Does concavity of the utility function has any bite?

A utility function in general has only ordinal meaning, any monotone transformation preserves the order isomorphism of the underlying preference ordering. However, there are several econometrics ...
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### Can someone explain graphically why MRS is invariant under monotonic transformation?

Let $U(x,y)$ be a utility function. Suppose I have an indifference curve for which $U(x,y) = \bar{U}$. Then $dU = 0$ along the curve and I can rearrange to find the MRS. Suppose I have a monotonic ...
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### Relationship between Revenue-Elasticity and Price-Elasticity

I have attempted to solve this problem and would be grateful if someone looked over my solution 5% increase in price results in 5% decrease in total revenue. I need to determine price elasticity of ...
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### For a given set of consumption bundles, how do we know there are bundles that the consumer is indifferent between?

In my professors lecture notes (it's more like a book), he states four properties of preferences relations: monotonicity transitivity continuity completeness He then goes on to discuss utility ...
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### What properties must a utility function have such that we can define level sets and thus indifference curves?

I asked on Math SE a bit about level sets here. Based on what I learned, it seems like we usually assume a level set $L(f)$ and its function $f$ defined on $\Bbb{R}^n$ have the following properties: ...
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### Does a monotonic transformation of a homothetic utility function imply the preference relation on the set of consumption bundles is still homothetic?

Does a monotonic transformation of a homothetic utility function imply the preference relation on the set of consumption bundles is still homothetic? Obviously, if a utility function on a set of ...
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### Price difference of substitute goods when the supply increases?

In a competitive market, there are 3 types of goods: X, Y and money (m). X and Y are substitute goods, and the utility functions are quasi-linear with respect to money, i.e: $$U(x,y,m) = u(x,y) + m$$ ...
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### From single-consumer-multi-units to multiple-consumers-single-unit

When I took a course in consumer theory, the economy always had a single consumer, represented by a monotone positive utility function $u(x,y)$ and an income $I$. Given prices $p_x$ and $p_y$, it is ...
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### Gross substitutes vs. net substitutes

Wikipedia explains the difference between products that are "gross substitutes" and products that are "net substitutes". However, the mathematical explanation doesn't give much intuition about these ...
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### Quasilinear Utility Functions

We know if the utility function is quasilinear (QL) w.r.t good 1, then the demand for other goods is independent of income (no income effect for goods $(2,\dots, N)$). But is the reverse implication ...
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### Solving for optimal consumption bundle

Consider a consumer who can consume either A or B, with the quantities being denoted by $a$ and $b$ respectively. If the utility function of the consumer is given by $$-[(10-a)^2+(10-b)^2]$$(suppose ...
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### Consumer Theory - Relationship between compensating variation (CV) and the equivalent variation (EV)

John consumes two products – X and Y and his preferences are represented by an unknown utility function – u(x,y) (we may assume his indifference curves are well-behaved). His income is m, while the ...
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### Current knowledge about the empirics of consumer theory

I would like to get up to speed on the current state of empirical work done to test the assumptions and predictions of consumer theory (think Chapters 1, 2, 3, and 6 of Mas-Colell et al.). Can anyone ...
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### Is non-monotonic local non-satiation supported by consumer theory in economics?

In general (Walrasian) equilibrium, local non-satiation is one of the assumptions that guarantee existence of equilibrium. Question is, is non-monotonic local non-satiation preference supported by ...
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### The relationship between the expenditure function and many others!

I dont understand the relationships between Hicksian demand, walrasian demand (marshallian), the expenditure function and the indirect utility function (including the value function V(b)). I have ...
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### Is it possible to derive indifference curves given marshallian demand function?

In a two good world, will a marshallian demand function the likes of D(p,m) where p is the price of one good and m the income yield a utility function or ...