Questions tagged [consumer-theory]

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

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497 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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1answer
29 views

Is there any evidence for consumer utility-maximising behaviour, at individual or market level?

Even though utility maximisation is ubiquitous in economic textbooks to model consumer behaviour, its usefulness is rarely demonstrated by evidence. Is there any evidence that some consumers do ...
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61 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 ...
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69 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 ...
2
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1answer
88 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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89 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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63 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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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
466 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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85 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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52 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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343 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 ...
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619 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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27 views

Shortcuts for elasticity of substitution

How can I find the elasticity of substitution (I know the definition) if I know the utility function $u(x,y)$? I know its increasing in $x$ and $y$, etcetera, and has everything else you want from a ...
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2answers
157 views

Derive demand function $x(p,w)$ from utility function $u(x) = \min\{x1, x2\} + x3$

I know how to solve the two-good case with $u(x) = \min\{x1, x2\}$, but the addition of $x3$ confuses me. Problem Derive the demand function $x(p,w)$ from $u(x) = \min\{x1, x2\} + x3$ What I did ...
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17 views

Index Theorem for Regular Infinite-Agent Economies

A formulation of the Index theorem states that for a regular economy: $\sum_{p | z(p) = 0, p_L = 1} index p = +1$ Does this hold for models with uncountably many agents?
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22 views

Difficulty Understanding CPI (Consumer Price Index)

Here's a question about CPI in my microeconomics text (Pindyck), which I don't seem to understand: The price of computers has fallen substantially over the past two decades. Use this drop in price ...
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17 views

Do you know any paper that discuss the effect of the deterrence of fines of individuals' behaviours? What is the difference between a fine a fee?

According to Gneezy and Rustichini the presence of an extrinsic reward in activities with a level of intrinsic motivation (e.g. volunteering) reduces intrinsic motivation, thus it may determine ...
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21 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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21 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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127 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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197 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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235 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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193 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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82 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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373 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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463 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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27 views

On shapes of indifference curves

I encountered this question in Microeconomics by Pindyck and Rubinfeld. The question says that "Suppose Jones and Smith have each decided to allocate $1000 per year to an entertainment budget in the ...
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21 views

weakly preferred consumer bundles

I am currently studying consumer choice and saw that weak preference refers to when an individual prefers or is indifferent to two bundles (such as bundle A and bundle B). I was wondering what is ...
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42 views

Special case for wealth allocation with quasilinear utility functions

Building on this question, regarding the answer from Bkay: Is it a general statement that when $m < \frac{p_y^2}{4 p_x}$, all income will be allocated to $x_M$? What about the case when the ...
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22 views

Change in Consumer Surplus with two goods

Suppose we have two goods, price changes in the two are independent; having seen this question I am considering why the change in total Consumer Surplus is the sum of the change in Consumer Surplus ...
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20 views

Would households rather live in a world with or without the unemployment insurance?

Would households rather live in a world with or without the unemployment insurance? What is a good example of world in which unemployment insurance is seen as a benefit, and not a hindrance?
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15 views

CPI Bias with consumers using computers extensively

I was studying Microeconomics from Microeconomics by Pindyck and Rubinfeld where it was written that CPI calculated on Laspeyres index has overstated the cost of living for consumers who use computers ...
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38 views

Household utility functions

In basic consumer theory, there is an individual consumer who has a utility function, this function induces the individual's demand (given budget and prices), and this in turn determines the ...
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41 views

Finding the optimal consumption bundle given the strictly concave utility function $v(x,y) = U(x) +y$?

I am also finding it difficult to understand what are the fundamental differences between analysing optimal bundles between concave and convex functions ? Does it also happen that the optimal bundle ...
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21 views

How are preferences related to relative prices?

For instance, across regions of a country or between countries. Is that different preferences for food lead to distinct relative prices in different regions or countries? Or is it the other way ...
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23 views

Number of items per consumer in a period (German supermarkets)

I'm trying to find some figures, however I cannot come up with a correct formulation, or lack of information in this field. I need the statistics of how many items are sold per receipt (avg) in ...
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198 views

What is the difference between ordinary income effect and endowment income effect?

As far as I understand: Ordinary income effect: A change in the price of good 1 will affect my future behaviour (the quantities that I will buy of good 1 and good 2). But it doesn't really affect my ...
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634 views

Is the Hicksian demand curve steeper or flatter than Slutsky demand?

Putting price on the vertical axis and quantity on the horizontal axis, is the Slutsky demand steeper or flatter than the Hicksian demand curve? If I calculate the Slutsky and Hicksian substitution ...
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415 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
429 views

Budget lines and Indifference curves: How do you figure where exactly you should draw the IC tangent to a budget line?

In Consumer Choice, we frequently encounter budget lines and indifference curves. For a given budget line, the optimization point is at the point where the indifference curve is just tangent to the ...
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1answer
2k 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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1answer
34 views

How is patience modelled?

How is consumer patience modelled? My first thought was "discount factors, but the problem is that it doesn't seem to capture the intuitive notion of what being patient means. For example, the ...