Questions tagged [consumer-theory]

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

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3
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4answers
4k views

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 ...
1
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1answer
150 views

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 ...
2
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2answers
955 views

Editing formula for finding Marshallian Demand with Cobb-Douglas utility function

Suppose a utility function $u=x_1^ax_2^b$ with $a+b=1$. The following formula finds the values for $x$: $x_1 = \frac{am}{p_1}\\ x_2 = \frac{bm}{p_2}$ But what if the utility function looks like $u=...
2
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1answer
2k views

How does one graph indifference curves for a set of Lexicographic preferences?

Two Questions: Since Lexicographic preferences are not continuous, is it still appropriate to use $\Bbb{R}^n_+$ to define my coordinate axes when drawing Lexicographic preferences? If not, what ...
10
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2answers
28k views

Marshallian Demand for Cobb-Douglas

When trying maximize the utility having a cobb-douglas utility function $u=x_1^ax_2^b$, with $a+b = 1$, I found the following formulas (Wikipedia: Marshallian Demand): $x_1 = \frac{am}{p_1}\\ x_2 = \...
2
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1answer
780 views

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 ...
4
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3answers
1k views

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: ...
6
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1answer
721 views

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 ...
2
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1answer
427 views

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: $$U(x,y,m) = u(x,y) + m$$ ...
2
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1answer
53 views

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 ...
8
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1answer
18k views

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 ...
6
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3answers
17k views

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 ...
4
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1answer
3k views

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 ...
2
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0answers
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 ...
14
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3answers
173 views

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 ...
3
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2answers
3k views

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 ...
14
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2answers
11k views

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 ...
10
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1answer
535 views

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 ...
8
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2answers
940 views

When can one safely talk about decreasing marginal utility?

One thing I hear a lot is talk of decreasing marginal utility—the idea being that additional units of a good become progressively less attractive the more units of that good one has already. However, ...
23
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4answers
2k views

What are Giffen Goods?

What exactly are Giffen goods and are they of purely theoretical interest or has there been empirical evidence of their existence?