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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How to derive the indirect utility function of $u(x_1,x_2) = x_2+ 2\sqrt{x_1}$?

I derived the utility $u(x_1,x_2) = x_2 + 2\sqrt{x_1}$ from the indirect utility $V(x_1,x_2) = \frac{y}{p_2} + \frac{p_2}{p_1}$ but cannot go the other direction without finding very complicated ...
Ricky Li's user avatar
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Is cross-price elasticity a Cobb-Douglas production function?

This may seem like a silly question... Well... I guess, because it really is... But I have just realized that the intuition behind both principles may not be mutually exclusive. Consider we would like ...
Athaeneus's user avatar
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What is the frisch elasticity and its meaning?

I understand that Frisch elasticity is the "elasticity of hours worked to the wage rate". I wonder why then we use this specific naming only for this? Is this to make it clear what this ...
student1's user avatar
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Proof that utility function is differentiable

after a little problem (I asked my question in the answer section, apologize, all my bad for this), I repost my question here with the same message : "I'm new on economics stackexchange, and I've ...
Economos's user avatar
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How to get the function that shows the relationship between wage and labor supplied

In the purchase-leisure trade-off curve, we get the relationship between wage and working hours. But how can we get the relationship between wage and quantity of labor supplied? The demand curve is ...
Luming's user avatar
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In a two-good world, if one good is a Giffen good then the other is a good luxury

In a two-good world, if one good is a Giffen good then the other is a good luxury. This is a false statement. Reason: If X is a Giffen good then Y must be a normal good. But we cannot get any ...
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True or False: If there is no money illusion, once all price elasticity is known, the income elasticity of commodity demand can be calculated

True, false or uncertain: If there is no money illusion, once all price elasticity is known, the income elasticity of commodity demand can be calculated. My answer is false. I don't think it's ...
Jonathen's user avatar
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Which of these two lotteries, a consumer with Von-Neumann Morgenstern preferences will choose under exponential distribution?

Consider two lotteries each having an exponential distribution. The function of cumulative distribution of an exponential distribution is: $$F(x;\lambda)=1-e^{-\lambda x} \forall x \in \mathbb R_{+}....
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How to show that it is possible to approximate this risk premium?

Suppose a consumer with Von-Neumann Morgenstern preferences is faced with two risks and can only eliminate one. Let $\tilde{\omega}= \omega_1$ with probability p and $\tilde{\omega}= \omega_2$ with ...
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Confusion regarding the Slutsky equation

I'm reading Henderson and Quandt's Microeconomic Theory textbook and in the derivation process of the slutsky equation the final formula confused me a bit. The first term on the right of the equation ...
Adnan's user avatar
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How to force two utility functions representing the same preference to generate expected utility functions representing the same order on lotteries?

Let $i$ be an agent, and let $A=\{x,y,z\}$ be a set of three alternatives. Then, suppose that player $i$’s linear order (i.e., complete, transitive, antisymmetric and reflexive binary relation) on $A$,...
EoDmnFOr3q's user avatar
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Equilibrium with step function demand and supply

How do I solve a system of equations for equilibrium where the demand and supply functions are both step functions?
jimbo's user avatar
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Market for capital goods of housing: Name of the model

I am searching for a model of the market for capital goods applied on purchase prices, rents, and supply of new housing. The model, operating in continuous time, considers prices as a function of ...
Athaeneus's user avatar
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Labor in a monopsony

I understand that workers in a competitive labor market will take the market rate as given. Firms can hire as many workers as they want at the market rate. Why doesn't this apply to monopsonies? If ...
asdf's user avatar
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Prove: The law of demand holds if WA, Walras' law, homogeneity of degree 0, and homogeneity of degree 1 in wealth hold for Walrasian demand functions

Problem I am asked to prove the following result (MWG Exercise 2.F.5): The law of demand always holds if the walrasian demand function $x(\mathbf{p},w)$ satisfies the weak axiom of revealed ...
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Varian Analysis Non satiation question

Consider preferences defined over the nonnegative orthant by (xl,x2)> (yl,y2) if X1 + X2 < y1+ y2. Do these preferences exhibit local nonsatiation? If these are the only two consumption goods ...
Chavi Dusad's user avatar
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CES function: Lagrangian or Kuhn-Tucker

Let's have the following problem: $$U(\boldsymbol{x}) = \left(x_1^\rho + x_2^\rho \right)^{\frac{1}{\rho}} \qquad s.t. \qquad P_1 x_1 + P_2 x_2 \leq M$$ Is it optimal to solve this problem via pure ...
Athaeneus's user avatar
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Proof for Marshallian Demand function

If you have a Marshallian demand function that is strictly convex, then it satisfies WARP. How to prove this?
babededeeptido's user avatar
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Why did Bergemann and Morris chose a different setting with respect to Kamenica and Gentzkow only to reach to the same results?

Why did Bergemann and Morris choose a different setting with respect to Kamenica and Gentzkow only to reach to the same results? However none of both approaches seem to present the problem in a ...
Oliver Queen's user avatar
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Cobb-Douglas utility function

Why in Cobb-Douglas utility function, the exponents have to sum to one? Can they not be equal to 1 and why?
Huy Lê Thanh's user avatar
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Convex preference and convex utility

What are the differences between convex preferences and covex utility function? Why are convexity preferences usually represented by the quasi-concave function and not the convex function?
Huy Lê Thanh's user avatar
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1 answer
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Suppose $A$ is a $2x2$ matrix and ${\bf x}=(x_1, x_2)$. What does "$f(Ax)$ is supermodular" mean?

Suppose $A$ is a $2x2$ matrix, e.g., $A=\begin{vmatrix} a_{11} & a_{12} \\ a_{21} & a_{22} \\ \end{vmatrix}$, and ${\bf x}=(x_1, x_2)$. Suppose $f()$ is continuous and twice differentiable. ...
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How price is determined in the following monopoly model question?

I am studying microeconomics, and got stuck on the following question, specifically, part (b) and part (c): A monopoly-owned retail store is located next to a monopoly-owned parking lot. (The store ...
Grand Minister's user avatar
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Why is the supply curve monotonically increasing?

Context I am a beginner in microeconomics. I am trying to understand the demand-supply model. In my previous question (Supply curve of what?) I understood that supply curves exist for each product. ...
Dinosaur's user avatar
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Supply curve of what?

I am a beginner in microeconomics. I do not understand the supply curve at all. Supply curve of what? Is there a supply curve for each product? For example, is there the supply curve of "iPhone ...
Dinosaur's user avatar
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Question on Isolating The Wealth Effect in Analysis of Changes in Price-Wealth Combinations - MWG Exercise 2.F.3 Parts (e) and (f)

I am doing exercises in Chapter 2 of MWG. I feel I got completely lost in exercise 2.F.3 parts (e) and (f). $\textbf{Exercise}$ Here is the question: I have solved parts (a) to (d). In particular, I ...
Shenron's user avatar
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Taxation shifting the supply curve left, the demand left curve, why not both?

When we model supply and demand, I can understand why when we introduce the conception of taxation, we can model it as a shift to the left of the supply curve, this is because the marginal cost of ...
Sam Connell's user avatar
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1 answer
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What is a sufficient condition on the consumption set such that monotonicity of preferences implies local nonsatiation?

Consider an agent with consumption set $X \subseteq \mathbb R^L$ (where $0 < L < \infty$) and rational preferences $\succeq$ defined on $X$, and define monotonicity and local nonsatiation as ...
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Cost function from a weighted CES production function

I want to find the cost function given the CES production function: $$ Y = F(x_1,x_2) = (\lambda x_1^ \rho+(1-\lambda)x_2^\rho)^\frac{1}{\rho} $$ with $0<\rho<1$. So far I have set up the ...
fabs's user avatar
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1 answer
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Question on The Weak Axiom of Revealed Preference and The Definition of Revealed Preference Relation

I am solving the following problem (from Exercise 2.F.3 (b) in MWG) and I got confused by the weak axiom of revealed preference and the definition of the revealed preference relation. Here is the ...
Shenron's user avatar
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Microeconomics-opportunity cost and trade

Question: In Islandia, a small economy, Jack and Jill shall make their production and consumption decisions together. Jack can produce either 10 kg of banana or 14 kg of tea per day. Jill can ...
sharonzj f's user avatar
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1 answer
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MWG Exercise 2.E.5

Exercise Suppose that $x(\mathbf{p},w)$ is a demand function which is homogeneous of degree one with respect to $w$ and satisfies Walras' law and homogeneity of degree zero. Suppose also that all the ...
Shenron's user avatar
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Assumption of interior solution in the Lagrangian method

Why do we need to assume an interior solution before using Lagrangian method for utility maximization problems?
Ranu Jain's user avatar
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1 answer
32 views

Tastes: instantaneous or overall utility function

What are tastes referring to? I have always considered them to be the instantaneous part of dynamic utility function: $$U = u_1(x_1) + u_2(x_2) + \dots u_t(x_t)$$ Where $u_s$ denotes tastes in the ...
Athaeneus's user avatar
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Spence-Mirrlees Single Crossing Condition

This question stems from section 2.3.3.1, pages 76-78 of Bolton and Dewatripont "Contract Theory". Suppose we have a single buyer and supplier. Buyers types are drawn from a continuum $\...
Joseph Basford's user avatar
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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 ...
Nonenicht's user avatar
1 vote
1 answer
50 views

Does utility representation theorem need locally-nonsatiated as a condition?

I'm reading MWG's Microeconomics, and I'm a bit confused about the utility representation theorem. It states that a rational and continuous preference relation can be represented by a continuous ...
Nonenicht's user avatar
1 vote
1 answer
75 views

Differentiation in proof of Roy's identity

I have an issue deriving the proof of Roy's Identity. It's merely a math issue since I cannot understand how the derivative works. More specifically: When it says: "differentiating the above ...
john's user avatar
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Considering there are four different goods {w,x,y,z}, how many different relations can be defined using all goods

In this problem, you can either prefer a good to another, disprefer a good to another or be indifferent between the two goods. While I have been able to do it mechanically, I am very confused as to ...
Sasha Blain's user avatar
1 vote
0 answers
44 views

Asymmetric Information in the Labor Market

In Greenwald's paper "Adverse Selection in the Labour Market", he argued that there exists an asymmetric information problem in labor market where firms tend to keep workers who are more ...
ask's user avatar
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2 answers
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No difference in profits between quantity where MR>MC and quantity where MR=MC

Let's say that we produce 70 units as in the picture above. MR = \$4 , MC = \$2.5 and profit is \$90. Each of the next 10 units (till 80 units) have a positive contribution to profit since their MR>...
johnniem's user avatar
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How important is the underwriter syndicate of a bond?

When it comes to bond issuance, how crucial is the involvement of an underwriter syndicate in the process? They seem it be a bit like "hit-and-run" agents who facilitate the issuance, but ...
apg's user avatar
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A question in social choice and preference aggregation

Let $I = \{1, 2, 3\}$ denote the set of individuals and $X = [a, b]\subset \mathbb{R}^+$ with $a, b \in \mathbb{R}^+$ and $a < b$, be the set of alternatives. For each $i\in I$ and some $p_i\in X$ ...
Oliver Queen's user avatar
5 votes
2 answers
252 views

Is there relationship between increasing and decreasing returns to scale and homogeneity?

According to Varian's Macroeconomic Analysis (page 15), when returns to scale are constant, production function will be homogeneous of degree 1. When he discusses increasing and decreasing returns to ...
HerrMaximus's user avatar
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Calculate consumers WTP for product attributes

I have a large panel on the city level of how many cars of each {model, fueltype} combination were newly registered in each year. This panel also includes a large variety of characteristics for each ...
rösti23's user avatar
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2 answers
140 views

Find the competitive equilibrium of the following economy

The following question was given as a part of a task in microeconomic theory course. It is not from some textbook and since I still haven't figured a way to solve it I will leave it here. Thank you in ...
Oliver Queen's user avatar
1 vote
1 answer
42 views

Vertical income expansion path: explanation?

On the horizontal axis we have good x, on the vertical axis good y. The income expansion path is vertical. Which of the following assumptions is wrong? no homotheticity no strong monoticity ...
EcoSTUD233's user avatar
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Could you give an example of production function such that involves sunk costs?

I am looking for an example of a single output-single input production function such that involves sunk costs. I have in my mind that a drug - firm that is motivated to make a new drug, the drug has ...
Oliver Queen's user avatar
2 votes
0 answers
59 views

How Kyle's $\lambda$ emerges in the demand functions of the informed and uninformed traders?

From Albert S. Kyle's 1989 model. Suppose that the are trhee types of traders in the market, informed traders (I), uninformed traders (U) and noise traders. The population of $I$ traders is $N$ (...
Oliver Queen's user avatar
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Why are house helpers so expensive in the west?

In India, unlike western countries, most families employed in formal sector can afford a maid (engineer, doctor and so on). The commonly quoted reason on why one can do this is because of the large ...
tryst with freedom's user avatar

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