Questions tagged [elasticity-of-substitution]

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substitution effect in slutsky equation

We know Slutsky equation decomposes the price effect into substitution effect and income effect, where the substitution effect is the partial derivative of Hicksian demand function against the change ...
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Why does the price of firewood from Ardennes forests rise when the price of natural gas from the North Sea rises?

I have an exam question from last year that I don't understand. I have to explain this : why does the price of firewood from Ardennes forests rise when the price of natural gas from the North Sea ...
31 views

relation between elasticity of substituion and mrts

elasticity of substituion has been defined as the as the percentage change in capital labour ratio given change in mrts. but mrts itself tries to explain how a change in labour results in a change in ...
1 vote
59 views

Derivative to ln(K(t)) in the RBC model

In the calculation of the equation of motion for capital in the RBC model, I came across this equation: Can someone explain what are the mathematical steps in between? I don't see how exactly the ...
155 views

Hardcore elasticity of substitution (bad results)

I have a following function and would like to find the elasticity of substitution between pairs: $$U = \left( x_1^\delta + x_2^\delta + x_3^\gamma + x_4^\gamma \right)^{\frac{1}{\delta + \gamma}}$$ ...
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Krugman Model: Profit Maximization (relation price elasticity of demand and elasticity of substitution)

the pictures outline the situation and my problem. The only thing I dont understand, is why the inverse of the price elasticity is equal to the negative elasticity of substitution? (price elasticity ...
95 views

Elasticity of substitution by regression: Biased results (simulation)

I have the following simulation problem: Consumers, whose utility I know, go shopping for two goods. However, prices differ each time they visit a shop. Therefore, these consumers always purchase ...
62 views

Relation between complements and substitutes (for multiple goods)

I am a little bit curious about the following problem: If we have multiple goods (at least 3 or more)... And we know that $x_1$ and $x_2$ are substitutes and $x_1$ and $x_3$ are also substitutes, does ...
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How does the market respond when some suppliers of one product are forced to switch to supplying a similar product?

I'm interested in coming up with a basic model to describe the following simple situation. Initially there is an equilibrium in the market for the consumption of product A and product B. Product A and ...
574 views

Utility function distinguishing between complements/substitutes

Distinguish between complements/substitutes in utility function or production function Hello everyone, I would like to know if there exists some utility function $U(x)$ for $n$ goods that is able to ...
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Is elasticity of substitution defined for non-homogeneous production functions?

The elasticity of substitution between two inputs $x_1$ and $x_2$ is typically given as $$\frac{d \ln \left( \frac{x_2}{x_1} \right)}{d \ln(\mathrm{MRTS}_{21})}.$$ As these notes show, if the ...
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Is there a standard term for the elasticity of an isoquant?

Isoquants - the level sets of a production function $f$ - are very useful in microeconomics. For example, if we hold all but two inputs fixed, then the isoquant is a plane curve that quantifies the ...
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Elasticity of substitution for 3 and more goods (interpretation)

Elasticity of substitution for 3 and more goods (interpretation) Hello everyone, I have a problem regarding the understanding of how would the elasticity of substitution work in the case of function ...
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Elasticity of substitution

So, this is an economics question but the problem I have is a pure math problem I guess. So I have the following equation:f(x,y) this function have the elasticity of substitution(EOS): 1/(1-beta). a,...
1 vote
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How to simulate changes in quantity demanded when several prices change?

I am not sure if this is a straightforward question or not. Basically, I have a set of products along with their prices and quantities demanded. I also have own and cross price elasticities for each ...
1 vote
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If $X$ is a Giffen good then $Y$ must be a normal good

While going through some problems as part of self-study I encountered the following True/False question: Q. Steven only consumes two goods: $X$ and $Y$. If $X$ is a Giffen good for Steven, then $Y$ ...
327 views

CES production function application problem

I'm currently trying to do some estimations using the micEconCES package in R by Henningsen/Henningsen (2011). My issue is that I am not very familiar with R and I'm trying to implement my own dataset ...
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Relationship between Elasticity of substitution of sectoral outputs and elasticity of substitution of inputs

There are two sectors Y1 and Y2. Composite output is given by CES form - Each sector employs Capital and Labor in combination through Cobb-Douglas Production Technology. The paper mentions that ...