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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7 views

Multi dimensional Auction in economics

I am following this paper . They have different suppliers and one buyer and They are using auction to select best suppliers Suppliers will submit. suppliers offer a multidimensional bidding on quality ...
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1answer
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What does 'establishment' mean in real estate industry?

I read data on real estate industry and there is a table titled "establishments". The title of it is "number of establishments in real estate for all establishment sizes". Is '...
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How to calculate substitution and income effect when only 1 bundle is given?

I was given information of a consumer that initially consumed 4 units of both good x and good y with the initial price of $5 for both goods (px = py = 5). The initial budget constraint is 40 = 5x +5y ...
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how can Marginal price costing mitigating loss?

By a firm using marginal cost pricing, they set their price equal to marginal cost. This leads to no welfare loss. Marginal cost pricing however can make the firm take losses and not be able to ...
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Some basic Consumption CAPM questions

Say we are in a world described by the consumption CAPM. All investors in this world have quadratic utility. Also, assume that consumption is as follows: $$c_{t+1} = (1+m_t)c_t + s_t c_t e_t $$ where ...
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1answer
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Trouble Understanding the Integral Underlying Random Utility Models

Given a utility function, $U_{nj} = V_{nj} + \varepsilon_{nj}$, it makes sense that we can find the probability the decision maker $n$ chooses alternative $i$ as: $$Pr(U_{ni} > U_{nj} \forall j \...
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Selection of functional form for utility function in theoretical model

I am starting to work on an IO model and I am puzzled in front of the choice of the appropriate utility function. Since the concept of utility is so abstract, and one cannot directly refer to ...
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1answer
33 views

Revealed preference when there is no substitution effect

I've started reading about revealed preference, and in particular, how it works in the context of price changes. I understand that revealed preference can show us the general direction of the ...
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1answer
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How did Cowen and Tabarrok calculate the probability of Hewlett-Packard sales?

The discussion on prediction markets in the chapter on the price system in Tyler Cowen and Alex Tabarrok's Modern Principles of Economics, Second Edition (pp. 123-124) contains the following ...
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Why do vacationers spend more on food and essentials than the locals?

I cannot think of an answer to this question from the chapter on elasticity in Tyler Cowen and Alex Tabarrok's Modern Principles of Economics, Second Edition: How might elasticities explain why ...
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1answer
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Find the set of Pareto efficient payoffs in game theory [closed]

Here I want to find Pareto efficient payoff set. The answer is (C,β), (B, β), (C, δ) But I don’t understand why? Please explain clearly this answer. Thanks a lot
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Pareto allocations and Competitive equilibrium

Consider the one-consumer one-firm economy. The consumer has preferences over leisure $l\in(0,L)$ and consumption good $x ≥ 0$ represented by utility function $u(x, l) = ax + l$, where $a > 0$ is a ...
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Best book to self-study microeconomics

What textbook(s) (and other resources) would you recommend to someone who wants to self-study microeconomics to an advanced (graduate) level starting from 0 (i.e. no formal background in economics)? I ...
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Optimal Price and Quantity of Externality

I am trying to solve the following question: Let $h \geq 0$ represent a negative externality of a firm's production on one (representative) consumer. The consumer has a quasi-linear utility function ...
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1answer
48 views

Calculating optimal level of negative externality

I am trying to solve the following question(s): Let $h \geq 0$ represent a negative externality of a firm's production on one (representative) consumer. The consumer has a quasi-linear utility ...
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1answer
51 views

What will giffen goods and Veblen goods peform in general equilibrium model?

I'm a beginer of microeconomics. According to consumer behavior theory, a consumer possesses a set number of money as budget constraint at first. And their is negative income elasticity of demand and ...
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Are spectrum auctions a tax?

According to Wikipedia, A spectrum auction is a process whereby a government uses an auction system to sell the rights to transmit signals over specific bands of the electromagnetic spectrum and to ...
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How do non-price determinants of supply and demand affect the price of a product?

I am currently doing my IB economics homework about demand and supply, and this question just has me very confused The teacher then specifies that they must be non-price determinants. To my ...
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1answer
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How to compute elasticity of substituion in general?

We know that the elasticity of substitution is defined as $$ e=\frac{d \ln(x_2/x_1)}{d \ln(MRS_{12})}=\frac{\frac{d(x_2/x_1)}{x_2/x_1}}{\frac{d(MU_1/MU_2)}{MU_1/MU_2}} $$ When we compute ES for CES ...
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1answer
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Interior Solution for profit maximisation problem

A function $c: \mathbb{R}^K_+ \xrightarrow{} \mathbb{R}_+$ is is said to be a cost function if The value of function $c$ at $y = \textbf{0}$ is $0$: $c(\textbf{0}) = 0$ $c$ is continuous on the ...
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2answers
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How does “buy low, sell high” relate to supply and demand?

I'm taking introductory microeconomics, and I'm trying to consolidate my understanding by looking at some real world examples. In a perfectly competitive market, there are many consumers and suppliers ...
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1answer
180 views

consumer surplus decreasing

MRU has the following question on a quiz: Suppose the government forced all bread manufacturers to sell their products at a “fair price” that was half the current, free-market price. To keep it ...
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Citing non-economics studies in an economics research paper

I am currently working on a paper in economics that has some dimensions that discuss women's social value. As is the case in developing countries a lot of economic studies do not exist whereas there ...
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1answer
131 views

Seemingly simple consumer theory problem

A function $v: \mathbb{R}^K_+ \xrightarrow{} \mathbb{R}_+$ is is said to be a valuation function if The value of function $v$ at $x = \textbf{0}$ is $0$: $v(\textbf{0}) = 0$ $v$ is continuous on the ...
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Order-driven vs quote-driven markets

What is the difference between order driven and quote driven markets? Is there any theoretical microstructure book that gives the intuition behind the types of markets with respect to the orders that ...
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1answer
73 views

Multidimensional product differentiation and density functions

I’m having trouble with a model (link) I’m working on for a review. The author uses a two firms hotelling model with a multidimensional product space (x,y)with orthogonal characteristics, which are ...
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1answer
77 views

Why do most function images take the form of a curve? [closed]

I always see curves (such as in dark blue below) and not any other type of (function) image. May I get a reason for why it is always like that? This figure is only for representation.
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1answer
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Can I rename a utility function based on its properties?

A big name researcher gives a name to a specific utility function 30 years ago. Now I am writing a paper and feel that a new name might be more suited because of the properties associated with the ...
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Why car rental companies have different models in the same group?

When booking a car, car rental companies do not guarantee that a specific model will be available. Normally they can only guarantee you'll get a model in the same category (or above). For example, you ...
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1answer
59 views

I need to prove how an increase in output p increases profit-max. Can someone help to understand why IFT implies that z is a unique maximizing point? [closed]

MWG 5C6 asks: "Suppose a concave prod function f(z) with inputs $(z_1,...,z_L-1)$ and also that $\partial f(z))/\partial z_l \geqslant 0$ for all l and $z\geqslant0$ and that $D^2f(z)$ is ...
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Choice under Uncertainty: Relation between the certainty equivalent and the coefficient of relative risk aversion

That's my question! Propositon 6.C.4 (MWG (1995)): The following conditions for a Bernoulli utility function $u(\cdot)$ on amounts of money are equivalent: (i) $r_R(x,u)$ is decreasing in $x$. (iii) ...
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1answer
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Is M&A valuation a good proxy for company fair value?

I'm building a model for estimating a fair value of a company. Naturally I'd like to see if model's predicative capabilities are any good. Would using a value of a friendly M&A deal be a good ...
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Finding simple multiplier using G,Y,P,W

Let us say the estimated equation for the economy’s aggregate demand is Y = 400 – 15P + 8G And the estimated equation for the economy’s aggregate supply is Y = 5 + 11P – 10W where Y is the country’s ...
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Demand Function in monopoly [duplicate]

I am studying monopoly and I see that most exercises use inverse demand. why use the inverse demand function instead of the demand function?
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1answer
37 views

Constant marginal cost for a firm and perfect competition

What happens if the demand curve is flat because the firm is a price-taker in the market, but the firm has a constant marginal cost. If the equations are the same I assume the price would be set with ...
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1answer
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Why does supply equal demand? Problem if large increase of price, decreases demand only by a bit

I have looked at my coursenotes and this thread here:Why does supply equal demand?, but they did not adress, why I do not understand the law of supply and demand. The way I understand this law is the ...
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Uncertainty and Pareto efficient policies

There are two economic agents $i\in \{1,2\}$ with state dependent utility $u_{is}=-(x-b_{is})^2$ where $x\in R$ and $b_{is}\in R$ is bliss point of $i$ in state $s\in\{1,2\}$. Assume $b_1s\lt b_{2s}$ ...
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Short, Medium and Long-Run Profit Maximization

Suppose that, in a perfectly competitive industry, the firms' technology have the following cost function: $C(x) = 100 + 3x + 0.04x^2$. Assume the fixed costs are sunken. a) If the demand for the ...
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Looking for an universal utility function

I'm trying to build a computer simulation of an economy which separate simulation for each household and I'm trying to figure out what utility function should I use to model the households behavior. I ...
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maximization program with a discount factor in monopoly with learning by doing

I would know something about the multiproduct monopoly. In the case with independent demands and costs dependents, it is in the case with only 1 physical good sold out of 2 periods. For example (...
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1answer
45 views

Migration wage differential, Borjas (2013) textbook

Basic calculus question here! I started reading the textbook Borjas, G. J. (2014). Immigration economics. Harvard University Press and am confused already with the first result. Background: He frames ...
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1answer
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Shapley Value - Any Real World Applications?

The Shapley Value has been around for seven decades now. It is intuitive, tractable, and has many desirable properties. To my surprise, however, its actual applications in the real world are not ...
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1answer
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Local nonsatiation

Suppose that $x^*$ satisfies $x^*\succsim x$ for $\forall x\in\{{x∈X|p·x\leq m}\}$. How can we prove that $x\succsim x^*$ $\Rightarrow$ $p·x≥m$ if $\succsim$ is locally nonsatiated? My idea for this ...
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4answers
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Why does anyone prepare their own food?

I'm not an econ person, so this is a super naive question, but here goes: why, given the comparative advantage that specialization produces, does anyone prepare their own food rather than buying from ...
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2answers
266 views

Under what condition is a cost function strictly concave in prices?

Define the unit cost function as $$ c(w) = \min_{z\geq 0} w\cdot z $$ subject to $f(z)\geq 1$. Where $w$ is a vector of input prices, $z$ is the vector of inputs and $f$ is a production function. We ...
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Von Neumann–Morgenstern implications for repeated strategic games

I am currently studying game theory and have just begun looking at repeated strategic games. In my lecture notes, it states that "preferences are unique up to an affine transformation", ...
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1answer
27 views

Consumer Surplus [closed]

Is there a case where the consumer surplus being negative does not mean that the producer surplus increases? Is it true that as consumer surplus increases, producer surplus decreases and vice versa?
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1answer
77 views

How to compute elasticity of substitution in labor market of blacks and whites using experience-education groups?

I'm reading "Competition in the Promised Land – Black Migrants in Northern Cities and Labor Markets", by Leah Boustan, and I'm trying to understand her computation of black and white ...
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1answer
79 views

Signalling models and out of equilibrium beliefs

Consider the simplest version of the Spence signalling model. There are two types of worker, with either productivity $\theta_H$ or instead productivity $\theta_H < \theta_L$. The proportions of ...
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1answer
43 views

Lagrangian multiplier and optimal bundle

I would like to know where I am wrong (if I am) and why I am wrong here please: If a consumer has an income of 600 euros to spend for good x (Px = 10 euros) and good y (Py = 5 euros). What is the ...

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