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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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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
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 ...
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1answer
636 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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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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0answers
57 views

Does this conditional increase in income affect a budget line in the same way as an unconditional increase in income would?

It's been awhile since I've taken introductory microeconomics. I remember increases in income move budget line outward. What if the increases have some condition? The problem: Jill has $I$ to ...
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0answers
53 views

Competitive Equilibrium in Securities Market: First Welfare Theorem

I'm working through Kerry Back's "Asset Pricing and Portfolio Choice Theory" book. Trying to work through the proof of the First Welfare Theorem in the context of securities markets on page 58. Back ...
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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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
22 views

What type of data packages am I looking for?

I did a bit of googling and I see there are companies that sell market research data, and wanted to know if anyone knows more about it. I am specifically looking for consumer interest in the allergic ...
2
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0answers
384 views

What are cross price effects for the case of perfect substitutes?

U$(x_1,x_2)$ = $x_1 +x_2$ in the case of perfect substitutes If $p_1 < p_2$ then $(x_1^*,x_2^*)$ = $(m/p_1,0)$, if $p_1 > p_2$ then $(x_1^*,x_2^*)$ = $(0,m/p_2)$ Trying to figure out how a ...
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0answers
79 views

Net effects of mergers from consumers' perspective

When Anthem Insurance acquired Cigna Insurance in July 2015, this reduced consumer choice and possibly transferred negotiating power from the consumer to the insurance provider. But the merger also ...
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0answers
49 views

Are there any situations where the elasticity version of the Slutsky equation can only be used compared with the regular Slutsky equation?

Regular Slutsky Equation: $$\frac{\partial x_M}{\partial p_x} = \frac{\partial x_H}{\partial p_x} - \frac{\partial x_M}{\partial m} x _M$$ Elasticity Slutsky Equation: \begin{align*}\varepsilon_{x,...
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0answers
275 views

Probability of states of nature

I've been given the following question and would really appreciate any help on part a. I've looked over all of my resources for this course and we have always been given the probability of the ...
2
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0answers
565 views

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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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 ...
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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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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}}\...
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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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0answers
173 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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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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0answers
80 views

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?
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0answers
297 views

Calculating a cross price substitution/income effect

I am given a utility function $U(x,y)$, income $I$ and prices $p_x,p_y$. Then the price of $y$ rises to $p_y' = 3 \cdot p_y$. How are we supposed to calculate the substitution effect and income effect ...
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0answers
62 views

Why does housing and parking cost more in urban vs. rural areas, but the same is not true for access to the road?

In city centres, land is more expensive than in suburban rural areas, as land is scarce. Consequentially, housing and parking in cities cost more. However, the same is not true for using the road (...
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0answers
386 views

Utility function of a representative agent with quasilinear utility

Consider an economy with $n$ 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 ...
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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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0answers
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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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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 ...
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0answers
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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0answers
76 views

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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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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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. ...