Questions tagged [microeconomics]

Microeconomics is a branch of economics that studies the market behavior of individual actors (usually firms and consumers) and the aggregation of their actions in different institutional frameworks (usually the market).

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Proof of the tangency condition in UMP

When an indifference curve is tangent to the budget line such that the preferences are convex and monotone, why is the point of tangency an optimal for an UMP? Given the budget line $p_1 x + p_2 y = I$...
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When are labour unions good and when are they bad?

Recently in the UK, transport workers have gone on strike, causing severe disruption as only 1 in 5 rail services are now running. They can only do this as a result of unionisation and laws protecting ...
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Proving Pareto-efficiency with MRS

Given three people with the same utility function: $$ u_A(x_1,x_2)=u_B(x_1,x_2)=u_C(x_1,x_2)=\sqrt{x_1x_2} $$ Prove that the following allocation is Pareto efficient: $$ x_A=(2,2),\: x_B=(3,3),\: x_C=(...
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Right-to-manage wage bargaining (simple algebraic steps)

I am following (and trying to understand) a paper where the wage of unskilled workers is determined as the outcome of wage bargaining between a single union and a single firm in a right-to-manage ...
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Is it possible to have mean-variance preferences with different states of nature? Mean-Variance and Expected utility together?

I have to maximize mean-variance preferences like this (where Pi is a profit function): \begin{align} \label{eq:9} \max\limits_{Q_{F}^{\{x\}}}Z_{w}= E[\pi{\{x\}}]-\frac{A}{2}Var[\pi{\{x\}}] \nonumber\\...
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3 votes
1 answer
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Convexity of preferences (dissimilar definitions)

Varian's Intermediate Microeconomics describes convexity as $$\text{Given } x, y \in X: x \sim y \implies \forall t \in [0,1], tx + (1-t)y \succeq x,y$$ The other definition I read everywhere is: $$\...
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1 answer
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A paper about the economics of (physical) power?

A couple of years ago I came across a economics paper that derived a microeconomic model in which if you include (physical) power and competition it led to some particular equilibriums. I do not ...
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Representation theorem for $\succsim\supset>\cup\sim$

On $\mathbb R^2$, define $x=(x_1,x_2)>(y_1,y_2)=y$ if $x_i\geq y_i$ for all $i$ and $x_j>y_j$ for some $j$. Let $\sim $ be an equivalence relation that $x\sim y$ implies $x\not> y$. Define ...
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Do collusive agreements always lower output?

I read that collusion between firms in a oligopoly setting make sure that consumers experience higher prices and lower output because the firms start to function as if they are in a monopoly. Is this ...
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Proof that weak Monotonicity and local non satiation imply monotonic preference

Weak monotonicity in my case is defined as follows: If x is weakly larger than y, then x must be weakly preferred over y. Monotonicity is defined as follows: If x is strictly larger than y, then x ...
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How does immigration drive marginal productivity in the specific model?

I'm learning about the specific factor model and as part of that, I'm studying the impact of immigration on wages and labour. I was doing an exercise online, with two goods cloth and food, cloth being ...
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1 answer
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Macroeconomics and microeconomics

Can we say macroeconomics is top down approach and microeconomics is bottom up approach .Is there any relation/connection between macroeconomics and microeconomics.
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Fundamental knowledge about invest, stock and economics for self learning [closed]

I am not expertised in the field of economics and stock so I do not know anything about invest. Would anyone please recommend any book/textbook for the initial leaner to get understanding of all these ...
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What can be done when pigouvian taxes must be so high that black markets become viable?

The whole point of a pigouvian tax is to force producers to bear an extra cost equal to the total social cost of a good right? But, the problem this presents is, what if the social cost is very high? ...
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Higher wage, lower income - explanation

'The bubonic plague killed about one-third of the population in 14th-century Europe and as a result raised the incomes of peasants but reduced the incomes of land-owners.' is the statement. Now I have ...
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What social aggregators are complete?

I am reading Eliaz (2004) for a general treatment of social-choice impossibilities. I am confused by the fact that it seems that we should get completeness even in situations where we should not have ...
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-1 votes
1 answer
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Why does a stronger US dollar translate to potentially lower sales and earning for Microsoft?

A recent headline stated: "Microsoft Corp. cut sales and earnings guidance for the fourth quarter, citing unfavorable foreign exchange rates as the stronger U.S. dollar takes a toll." ...
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2 votes
1 answer
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How will world economy run when we run out of oil reserves?

Oil is a significant component of world's economy. Various wars have been allegedly fought over oil. But, it is a limited natural resource. Our standards of living have gone up, thanks to ...
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In international trades between countries, who sets the exchange rate?

In the context of globalization, USA apparently exports airplanes and imports textiles and shoes etc. When a trade is carries out between two parties, an exchange rate is decided. 10 item A for 5 item ...
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Calculating profit from price and cost

For a given item, if we know that the equilibrium price is 400 and the cost of manufacturing quantity $x$ of the item is $2x^3+900$, then how can I find the profit? My initial thoughts are that this ...
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Say a preference is "constant“, by analogy with a constant function

Let $f$ be a function with range of $\{-1,1\}$ and $f(x,y)=-f(y,x)$. Let the preference $\succ\subset X\times X$ where $x\succ y \iff f(x,y)=1$. In math we can define $f$ to be a constant function on ...
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3 votes
4 answers
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Diminishing marginal utility role in downward sloping demand curve

One of the reasons people generally denote the downward sloping demand curve is diminishing marginal utility, which says that each incremental unit brings less and less utility. But, how does it ...
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3 votes
1 answer
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Concave utility functions solution example

In the following post an example is given of the corner solution for a concave utility function. I tried solving it but got stuck. I have no idea how these types of problems are solved so if you could ...
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1 vote
0 answers
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Can the topological assumption in Debreu's representation theorem of cardinal utility be altered from "connected separable" to "second countable"?

Theorem (Debreu 1959 page 9, 10) Let $X$ be connected separable topological space endowed with product topology. If $\succsim$ is independent and at least three factors are essential, then there exist ...
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How to define the market and the clearance conditions of a general sectoral computable equilibrium model?

I am trying to implement a general multiproduct market (partial/sectoral) computable equilibrium model, where "general" refers to the fact that the relation of complementarity/...
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3 votes
1 answer
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Efficiency Criteria to provide a public good?

Suppose there are two consumers in the whole economy. If the cost of a public good is 100, and the maximum willingness to pay for a public good for consumers 1 and 2 is 80 and 25, would it still be ...
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Why is a firm's profit maximized when MC=MR? Why not stop one unit before where it will still make a profit?

It seems that an equilibrium where MC<MR is preferred to one where MC=MR since in the case of the latter the firm still makes a profit. Put differently, why would a firm produce a unit at all if it ...
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0 answers
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For the cost function question (equation in image), I have found TVC as AVC*P. However the MC curve derived is giving imaginary number solution

For the cost function question (equation in image), I have found TVC as AVC*P. However MC curve is showing an imaginary number as solution.
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3 votes
2 answers
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Majority Voting Game

There are three players with three alternatives A,B, and C. Players simultaneously vote and majority wins. If no majority then A wins. Payoffs are: $U_1(A) = U_2(B) = U_3(C) = 2$ $U_1(B) = U_2(C) = ...
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4 votes
1 answer
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Does Debreu's representation theorem of ordinal utility require Hausdorff topology?

By Debreu's theorem of ordinal utility, any continuous weak order on $X$ is represented with a continuous utility function, if $X$ is a second countable or connected separable topological space. My ...
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1 answer
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Constrained optimization to find utility maximizing allocation

I am trying to find the allocation of goods X and Y in order to maximize utility between two consumers. The two utility functions are: $$ U1 = xy^5 $$ $$ U2 = 10xy $$ There are 8 of good X and 8 of ...
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3 votes
1 answer
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Solow residual with cost minimization, calculus (Roeger, 1995)

I am trying to get a good understanding of the steps involved in solving the dual of a maximization problem, namely cost minimization. At some point (last two steps), the author ends up with the ...
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0 votes
1 answer
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Vector meaning within economics

So what does a vector mean in economics, in layman's terms? For example, https://en.wikipedia.org/wiki/Hicksian_demand_function where $h(p,\bar{u})$ is the Hicksian demand function, or commodity ...
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1 answer
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Trying to figure out the price elasticity of demand

I have a demand curve $y(x) = x^{-b}$ where $b > 1$. I'm trying to figure the price elasticity of demand, but I'm not familiar with finding price elasticity without having some sort of numbers. ...
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3 votes
2 answers
80 views

Two-sided market framework

I have a very basic question about the elasticity of demand/participation in the two-sided market framework, as created by Weyl (2010) and described by Jullien, Pavan, and Rysman (2021). Using the ...
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Monopoly and general cost function

A monopolist is operating at some output level $Q1$. The government imposes a quantity tax of $6$ per unit of output. If the demand curve facing the monopolist is $P = a − bQ$, by how much does the ...
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2 votes
1 answer
82 views

Does continuous preference imply upper-hemi continuous demand correspondence?

Let alternative $x,y,z\in R^N$. $\succsim$ is convex, rational, monotonic, and continuous. Let $B=[y,z]$ be a budget segment. Let demand correspondence be $D[y,z]=\{x\in B||x\succsim B\}$ $D[y,z]$ is ...
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What should the supply demand curve of a half full stadium look like

Stadiums have perfectly inelastic supply so the graph is perpendicular, but what should the demand curve look like in a game that did not sell fully? Thank you for the answer.
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0 answers
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Microeconomics, price caps

My question is how does a price cap on Rapid antigen tests (the one used to test for Covid 19) change the consumer and producer surplus in the short run assuming that the market for this product is ...
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1 vote
1 answer
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Road pricing to fix congestion on roads

Would someone be able to explain this graph? When the flow of traffic is higher at F1, why is the cost per trip lower (at b) compared to F2 where the cost per trip is higher (at c)? Lower congestion ...
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0 votes
1 answer
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How to compare the price elasticity of demand from different points by looking at the graph?

Let's say I have a demand curve looks something like this: How could I analyze who have the highest or lowest price elasticity of demand? it seems that the point 1 has highest price or demand? But ...
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1 vote
1 answer
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Checking negativity condition in demand system model

Let's assume you want to estimate a demand system model, e.g. the AIDS, based on observational data. Then you usually test first whether the homogeneity and symmetry condition hold in order to check ...
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3 votes
1 answer
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Which number counts officially as the " slope of the demand curve" : $\frac {\mathit d P(Q)}{\mathit dQ}$ or$\frac {\mathit d Q(P)}{\mathit dP}$?

This is a very elementary question from a complete novice, and aiming first at preventing a possible misunderstanding. Thanks in advance. Suppose we have a linear demand curve with Y intercept $(0,...
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Edgeworth Economy and Walras equilibrium

I have been given an Edgeworth Economy with to consumers A and B. Their preferences are given with the utility functions: My question is, how do I find the walras equilibrium? I tried starting out ...
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1 answer
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Is -1 elasticity considered unit elastic or relatively inelastic?

Simple question but can't find answer. Is -1 elasticity considered unit elastic or relatively inelastic? We know that if % change in quantity / % change in price = 1, we have unit elastic, does that ...
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1 answer
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When can I assume that a variable is exogenous?

I'm looking for the effect of nutritional coffee breaks on MBA performance, and I found that the change to a healthier catering increased the performance of MBA students. Additionally, I want to see ...
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1 vote
1 answer
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What does it mean to control for a variable?

Let's say I want to see the effect of having a pool on the price of properties in a city. What does it really mean to control for zipcodes? And does this answer the crucial question that I want to ...
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International Financial Economics

1a. A Singapore dollar (SGD) is worth RM3.09, and US dollar (USD) is worth RM4.09. What is the value of the US dollar in the Singapore dollars (i.e., how many Singapore dollar do you need to buy a ...
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0 votes
1 answer
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Price ceilings - diagram

Would someone be able to explain this graph? I understand that it shows a demerit good and that alcohol is being overconsumed in the free-market and at Q1 it is then at the socially efficient point ...
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1 vote
1 answer
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How should we understand the surplus triangle in the context of a price floor?

In the context of the standard supply and demand diagram, is there any economic interpretation of a triangle showing the surplus/excess supply that results from a price floor set above the market ...
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