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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labor leisure model, quasilinear preferences

There is a quasilinear utility function $u= (1-t)wl - p(l)$, where $l$ is labor supply. I don't quite understand what happens, if the budget changes (due to $w$ or $t$) since it is quasilinear. Does ...
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Equivalent assumptions in Revealed Preference and Classical Preference Theories

I have read that there are dualities between Revealed Preference Theory and Classical Preference Theory. Suppose, I have $X$ as the set of all conceivable choices, and $\mathscr{B} \subseteq 2^X$ the ...
1 vote
0 answers
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Zero-Sum Game with two Mixed Equilibrium Interpretation

In the attached Zero Sum Game, i have solved for two Mixed Nash Equilibrium, $(l,m)$ and $(m,r.)$ In $(l,m)$ the payoff is $8/5$ to $P_1$, and $-8/5$ to $P_2$. Here $P_1$ mixes between Top and ...
2 votes
0 answers
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Are there Sequential Equilibria that are not Trembling Hand Perfect Equilibria, that don't involve Weakly Dominated strategies?

I'm taking an advanced course (graduate level) in Game Theory. My class has covered several equilibrium concepts, up to Sequential Equilibrium. The professor said that there are already more ...
1 vote
1 answer
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Total Effect, Substitution Effect, and Income Effect

We were given this information to compute the total, substitution, and income effects. $U=7.5x^{0.3} \cdot 5y^{0.2}$, $\text{Income} = 10,000$, $P_x = 5$, $P_y = 2.5$, $P_{x'}=4$. I am having a hard ...
2 votes
1 answer
389 views

How do I measure well-being without Utility function?

This is a question from a test: "A consumer with \$1000 income spends \$200 on good X per month. His income increases to \$1100, and price of good X increases 50%, with no other price changes. In ...
2 votes
1 answer
574 views

Calculate optimal discount for product bundling

So recently I made some rules with my transaction data. Based on it I can determine which products are profitable to bundle it together. But even though I know e.g. product A→ product B, are there ...
0 votes
2 answers
86 views

bertrand duopoly with discrete price

There is a 2 firm, engaging in price competition. Total costs are CA(q)=10q and CB(q)=21q and the inverse demand is P(q)=120-q What is the equilibrium profits? What is the maximum amount that firm A ...
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1 answer
150 views

Purchasing Power Parity and Baskets of Goods

On the exact definition and understanding of "purchasing power parity" it depends what it means when the World Bank defines the “extremely poor” people of the world as those who are currently ...
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1 answer
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Lump sum transfers to implement any Pareto efficient equilibrium as the market outcome

If we have 2 consumers (a and b) and 2 goods (x and y) -- so we are in an exchange economy setup. From what I understand, due to 2FWT, we can choose any Pareto efficient outcome (x*), calculate the ...
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1 answer
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How Demand of a product affects the currency

Question : Iron ore is Australia's largest export. Suppose that there was an unexpected increase in demand for Australia's iron ore exports globally. Explain what this would do to Australian Dollar ...
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2 answers
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How to solve a Leontief Production function?

I am solving for the Leontief production function in the form of y= min {L^1/2 , K^1/2} , in the short run (fixed K) and in the long run respectively. I am asked to solve the production in terms of w, ...
2 votes
1 answer
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Derive indirect utility function - Problem with CES

Consider the following CES utility function for the $h$ household \begin{equation} U^h(x^h_1,\ldots,x^h_N) = \left[ \sum_{j=1}^{N} (x^h_j - \zeta^h_j)^{\frac{\sigma-1}{\sigma}} \right]^{\frac{\sigma}{\...
3 votes
1 answer
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When are marginal rates of substitution consistent with a utility function?

Is it known when a marginal-rate-of-substitution function can be rationalized by some utility function? More precisely, and focusing on the case of two goods, what conditions are required on $M: (\...
2 votes
2 answers
319 views

Effects of change in tax on output

Suppose the government imposes a tax on each unit of output produced of $t. What is the firm’s new profit maximizing level of output? The question suggests the use of comparative to determine how a ...
2 votes
1 answer
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Question About Proof of Proposition 3.C.1 in MWG - Step 1

I have difficulties understanding the first step of the proof of Proposition 3.C.1 in MWG. Proposition 3.C.1$\quad$ Suppose that the rational preference relation $\succsim$ on $X$ is continuous. Then ...
3 votes
1 answer
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Consumer surplus calculation

Suppose $P(Q) = 10-0.5Q$. If a firm is producing $q_1$ and $q_2$ units from its two different machines such that $Q = q_1 + q_2$, what is the consumer surplus at $(q_1, q_2)$? I think the consumer ...
3 votes
1 answer
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Understanding the definition of monotone

In Microeconomic Theory by Mas-Colell, Whinston, and Green, the definition of monotone preference relations is given as follows: Definition 3.B.2$\quad$ The preference relation $\succsim$ on $X$ is ...
-2 votes
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How could i find excess demand and excess supply using an formula

How do i find excess demand and excess supply using a formulae question
3 votes
1 answer
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Paper suggestions on innovation-economics

I am in search of seminal theoretical papers in innovation economics, with a particular interest in recent works that model innovation processes. Ideally, I'm looking for papers that explore the "...
1 vote
1 answer
57 views

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 ...
3 votes
2 answers
93 views

Different elasticities of substitution

I have been reading into generalizations of the concept of elasticity of substitution for more goods/inputs and three main possibilities emerged: Hicksian EOS Allen-Uzawa EOS Morishima EOS HICKS As ...
0 votes
1 answer
71 views

Ramsey model problem

Explain the no-Ponzi game condition throughout the function. Does the constrain function: also reflect include the No-Ponzi condition?
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1 answer
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Deadweight loss and consumption externalities

here's the problem and my solution so far: In this case, the Marginal Private Benefit (MPB) is given by the equation MPB = 100 - 4q and the Marginal Social Cost (MSC) is given by the equation MSC = ...
0 votes
1 answer
93 views

Deriving Unit cost function

Unit cost function is the minimum cost to produce one unit of output. The solution to the above problem is: where ai(w,r) is the amount of labour needed to produce 1 unit of good i at factor prices (...
3 votes
1 answer
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Net product marginal in Acemoglu's article "Modeling inefficient institutions"

I'm reading lecture notes by Acemoglu regarding institutions and I'm trying to study his famous model of non-democratic institutions, deeply described in his article "Modeling inefficient ...
0 votes
1 answer
17 views

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 ...
0 votes
2 answers
93 views

Trade and Opportunity Cost

This is a question on opportunity cost. I had problem in solving the last part. Please help me out.
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0 answers
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Modelling agglomeration effects

In this video, Glaeser sets up a demand curve for housing in a city, where there are agglomeration effects: bigger cities have higher wages, so demand (willingness-to-pay) is increasing in city size. ...
1 vote
1 answer
44 views

Finding Utility Function for Optimal Allocation in Consumer Choice Model

I'm working on a consumer choice model involving a consumer with one good and a numeraire. In this model, the price of the numeraire is assumed to be one. My objective is to identify the utility ...
0 votes
1 answer
206 views

Monopsony diagram curves

Why is the marginal cost curve not the same as the supply curve? My personal explanation is that since the marginal cost curve is cost of producing each new product, the supply curve just represents ...
0 votes
1 answer
42 views

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 ...
0 votes
1 answer
61 views

Cost Minimization

Guys in the following optimisation problem why are we not considering the partial derivate of K and L in the Lagrangian in the first two equations
1 vote
1 answer
60 views

Convex to origin - precise definition

This question asks about what "convex to origin" means. IMO even though there are half a dozen answers, they are all unsatisfactory. So in this question I ask for a precise definition of &...
3 votes
7 answers
12k views

"Convex to origin" indifference curves

The convexity of an indifference curve results from the fact that the absolute value of its (negative) derivative, which is the marginal rate of substitution is decreasing. But why do we say that it's ...
2 votes
0 answers
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Marginal Costs of Supplying Space to Space Market and the 4Q Model - Property Investment

In analysis of the Property Investment Market Supply and Demand Curve, the Supply Curve is kinked, reflecting the high inelasticity of supply in the short run. The Supply Curve rises after the Kink, ...
0 votes
1 answer
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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 ...
1 vote
1 answer
17 views

Regression with one independent variable bounded for some observations

I am investigating the effect of a policy on land price. The land is transferred by English auctions. My regression looks like this: $$ \ln(y)=\beta_0+\beta_1 x_1+\beta_2 x_2+u, $$ where $x_1$ is the ...
2 votes
3 answers
1k views

Determine if goods are substitutes or Complements based on demand function

So I have a consumer with a utility function of the Cobb-Douglas form $v(x_1,x_2)=x^{\frac{1}{2}}_1x^{\frac{1}{2}}_2$. From that I constructed the demand function for good 1 and good 2: $x_1=\frac{1}{...
1 vote
1 answer
61 views

Price elasticity of demand when total expenditure is constant

I was recently given the following question: assuming that a consumer's total expenditure for a good does not change when the price of that good declines, what is the price elasticity of that consumer'...
0 votes
1 answer
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Strict monotonicity implies FOSD under EU?

I think this result is very simple and very useful. However, I find no paper cover it. Is it on some textbook like MWG? Strict monotonicity means: $f(s)\succ g(s)$ for all $s$ implies $f\succ g$ and $...
1 vote
1 answer
61 views

Can the following statement be rationalized if it yields a choice function?

A person choose an alternative to maximize another person's suffering. I thought we could define a sort of relation where the person suffers more from x than y. And if we can always do this, we can ...
0 votes
1 answer
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Von Neumann-Morgenstern utility and taxes

"Consider a risk-averse individual with Von Neumann-Morgenstern utility and who invests in a risky asset. If the return on the risky asset is taxed, so the consumer has an incentive to invest ...
4 votes
2 answers
144 views

Definition of economics

What is the accepted definition of economics? I've read basically two versions, one that defines it as the study of scarcity and the other as the study of how to coordinate human desires given ...
1 vote
1 answer
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Consumer surplus in Logit model should minus actural payment?

In Logit model, as Train(2003) said in his book(page 55) said, "By definition, a person’s consumer surplus is the utility, in dollar terms, that the person receives in the choice situation. The ...
0 votes
1 answer
186 views

Income and substitution effects

I’m currently reading the core economics textbook, and I’m confused by the description of income and substitution effects. The income effect is defined as the effect on the point where marginal rate ...
1 vote
1 answer
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Judge prosecutor example of Kameinica and Gentzkow

Based on Kamenica and Gentzkow example about the prosecutor and the judge. The utilities of the sender and the receiver are $v(\alpha,\omega)=\alpha$ and $u(\alpha,\omega)=-(\alpha-\omega)^2$. The ...
2 votes
3 answers
156 views

Individual Consumers Representation on the Demand Curve

I recently watched an educational video titled “Understanding the Demand Curve: Shifts and Consumer Surplus”. In the video, individual consumers were associated with specific points on the demand ...
1 vote
0 answers
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What is a utility function rationalizes these preferences?

For a consumer deciding between goods A and B, with a budget of w: If A and B are the same price (or if A is cheaper), the consumer will spend their entire budget on A. As the relative price of A ...
0 votes
1 answer
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Competitive input markets and allocative efficiency

Suppose two firms are operating in a competitive input and output markets. If the two firms' production functions are $(k_1l_1)^{1/3}$ and $(1+k_1)^{-1} (l_2)^{1/2}$ where $k_1, l_1, l_2$ denote the ...

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