# Questions tagged [consumer-theory]

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

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### 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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### 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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### 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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### 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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### 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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### 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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### 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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### 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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### 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 ...
3k 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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### Consumer Econometrics: Identifying nature of goods

I have some data on household income and goods purchased. The first three columns and rows are: ...
98 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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### 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 ...
58 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 ...
488 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 $K = \left(\frac{\omega p_1}{p_2}\right)^{\frac{1}{p+1}}$ ...
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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### 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 ...
144 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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### 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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### 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 ...
6k 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: ...
223 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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### 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 ...
266 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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### 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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### 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 ...
371 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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### 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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### 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 ...
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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?