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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Fundamental equations in economics
For the other sciences it´s easy to point to the most important equations that ground the discipline. If I want to explain Economics to a physicist say, what are considered to be the most important ...
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Seminal papers that later were proven to contain errors
I was reading on institutions, and I came across Acemoglu, Johnson and Robinson (AJR) paper on The Colonial Origins of comparative development: An Empirical Investigation, and this paper seemed so '...
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Why do celebrities get high wages?
In the youtube video Why We Look down on Low Wage Earners the author argued: "economics states that wages are determined [...] by the number of people willing and being able to do a given job that ...
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What's wrong with the "airline marginal cost pricing" argument?
This is a very common argument found in introductory classes and texts. Here's Mankiw's version:
Thinking at the margin works for business decisions as well. Consider an airline deciding how much to ...
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How can power/electricity prices be negative?
Bloomberg shows this chart:
I understand the above chart to mean that consumers were actually paid to use electricity. (Please correct me if I'm mistaken.)
I was wondering how this is possible? How ...
user18
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Partial vs. general equilibrium
Microeconomic models are usually classified as partial and general equilibrium models. As a layman, I understand that partial equilibrium focuses attention on a few economic variables to find the ...
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What are FOCs and SOCs?
I keep seeing the terms first-order conditions and second-order conditions used in my undergrad economics class on production functions, monopolies, etc but I have no idea what these terms mean. It ...
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Why is fuel more expensive on the high way in Europe?
In Europe it's usual, that fuel prices are 10-20% higher on the highway, than in the city. This is not only my personal observation, but also mentioned on travel sites (eg here and here). I don't have ...
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What are Giffen Goods?
What exactly are Giffen goods and are they of purely theoretical interest or has there been empirical evidence of their existence?
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What do supply-demand curves really look like?
In my basic high school economics course, we've always used supply-demand curves that are lines to simplify calculations. In real markets for real goods, what do the supply and demand curves look like?...
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Is net neutrality not important in a competitive market of internet providers?
In my understanding, allowing ISP to throttle sites that use a lot of traffic is just price discrimination. The ISP will charge sites like Netflix, which will then pass the cost to Netflix consumers. ...
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Supermarket selling seasonal items below cost?
In a British supermarket, I saw the prices of Christmas chocolate gift boxes being cut dramatically (£1.50 to £0.15, and £7.50 to £0.22). I don't quite understand this behaviour, where the chocolate ...
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How accurate is duality?
In economic theory we know that with the use of some calculus, Hotellings Lemma and Sheppards lemma we can derive a given firms supply function and in term its Profit function.
With data of a given ...
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Topological concepts in economic theory
QUESTION: What are the major or systematic applications of post-1960s mathematics to microeconomics?
For example, in the late 19th century, Fisher first used the mathematical ideas of Gibbs to ...
user218
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Most notable papers in Economics in 2021
This question is based on this one in Math Overflow
I understand that I can't simply 'translate' the question into the area of economics. Thus, I'm open to improvements on the question framework.
Here'...
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If I gain, then someone else loses. Correct?
On a very small scale, it's certainly true that if I gain, somebody else might lose. If I take away my brother's chocolate, then he will lose it, and will most probably not get anything comparable.
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Consumer optimum in an economy with a continuum of commodities
Consider an economy with a continuum of commodities, with one commodity for each point in $[0,1]$.
Suppose a consumer wants to maximise
$$U = \int_0^1 c_i^\theta\,di\qquad 0<\theta<1$$
subject ...
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Are there theories that invalidate the "tragedy of the commons"?
Wikipedia states:
The tragedy of the commons is an economics theory by Garrett Hardin, according to which individuals, acting independently and rationally according to each one's self-interest, ...
user116
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Are monotonic and continuous preferences necessarily rational?
Let $\succsim$ be a strictly monotonic and continuous preference relation, and let $X=\mathbb{R}^{n}$ be the consumption set.
Is rationality of $\succsim$ implied by these conditions?
I think ...
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Should I stay or should I quit?
Is there an economic theory of quitting an activity? A theory that weighs the investment costs put into something and the opportunity costs of pursuing it.
I am aware of Fershtman and Gneezy ...
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The supply and demand of Virtual Products
We know that the fundamental economic problem is scarce resources relative to unlimited wants. **Does this apply to apps and Ebooks?**They are essentially virtual products who have in theory have ...
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The relationship between the expenditure function and many others!
I dont understand the relationships between Hicksian demand, walrasian demand (marshallian), the expenditure function and the indirect utility function (including the value function V(b)). I have ...
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Does a store suffering increased theft generally cause higher prices?
If a store suffers an increase in theft, will it generally lead to higher prices at that store?
My answer is that prices should have already been set to maximize the trade off between profit-per-sale ...
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Understanding the "But they will lose jobs!" argument
Suppose there is some industry whose profit is based on unethical business practices. Eg: A pest control company X, who themselves send pests into people's houses, so as to later earn money from ...
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If public roads are public goods, in what way are they non-rivalrous?
I get why, say, the military is a public good, but I don't get why public roads are public goods, since they can't be non-rivalrous, given that at any time only a subset of the population can actually ...
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What is a substitute/complement in terms of mixed partial derivatives?
I am trying to understand how substitutability relates to mixed partial derivatives. I thought the change in marginal utility with respect to a change in the amount of $x$ would correspond to $$\frac{\...
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Quality of French wine in the US vs French wine in France
I remember reading a study/paper saying that the AVERAGE bottle of french wine drunk in the US is better than the average bottle of french wine drunk in France, due to the fact that nobody bothers to ...
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What is it about certain business types that seem to restrict how much large they can grow?
For example, I've never heard of a large lawn-mowing corporation. Phone and computer repairers seem to consist mostly of 1 or two man operations. Wedding planners and photographers seem exclusively to ...
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Modern theory of integrability of demand?
I am aware of Hurwickz Uzawa work in integability, neatly summarized by Border http://people.hss.caltech.edu/~kcb/Notes/Demand4-Integrability.pdf
I am wondering if there is any modern treatment of the ...
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Why are cost functions often assumed to be convex in microeconomics?
Why are cost functions typically assumed to be convex in producer theory of (introductory) microeconomics?
For me this goes against the intuition of economies of scale. There are fixed costs (FC) ...
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Has monopoly theory incorporated network effects as a source of monopoly?
I studied industrial organization for my Econ. Ph.D. four decades ago. At that time industrial organization had no way to incorporate 'network effects' into monopoly theory. With the advent of social ...
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Marshallian Demand for Cobb-Douglas
When trying maximize the utility having a cobb-douglas utility function $u=x_1^ax_2^b$, with $a+b = 1$, I found the following formulas (Wikipedia: Marshallian Demand):
$x_1 = \frac{am}{p_1}\\
x_2 = \...
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What are the recent advancements in building a unified theory of bounded rationality?
It seems that bounded rationality models focus on explaining a particular psychological bias, in a very specific way. In particular, its seems that the state of the art consensus is that one size does ...
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Depreciation and second-hand markets for bicycles
Probably the answer to this question is "business as usual", but I've observed of late that the market for bicycles is pretty weird.
You can buy a brand new factory-produced bicycle in the US (I'm ...
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Why use empirical macroeconomic models when they are not policy invariant (Lucas Critique)?
With high probability this question is duplicate, and I tried to find one already in the community, but I was unsuccessful.
According to the Lucas Critique, in its more general terms, the problem ...
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Queuing Discipline and Lipschitz Continuity
I was reading a paper by Platz and Østerdal (2014) titled "The curse of the first-in-first-out queue discipline". I was wondering about a particular section of it, particularly the part about last-in-...
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When do supply and demand curves shift?
Let's assume that the price of apples has risen and that the quantity of apples sold during the last couple of weeks has decreased. From that, we can infer that the supply curve must've shifted to the ...
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What are the arguments against the rational expectations hypothesis?
I believe the rational expectations hypothesis says that agents in a model bear expectations that are the same as mathematical expectations.
Under what circumstances does this hypothesis become ...
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Does risk aversion cause diminishing marginal utility, or vice versa?
Let $A$ be the set of possible states of the world, or possible preferences a person could have. Let $G(A)$ be the set of "gambles" or "lotteries", i.e. the set of probability distributions over $A$. ...
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Why is Roy's Identity so important?
I've been reviewing some of my microeconomics theory and have been reading up on Roy's Identity. Recall that Roy's identity is defined as:
$$x^*_{i}(\text{p},m)=-\frac{\frac{\partial v}{\partial p_{i}...
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When can one safely talk about decreasing marginal utility?
One thing I hear a lot is talk of decreasing marginal utility—the idea being that additional units of a good become progressively less attractive the more units of that good one has already.
However, ...
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Intuitive explanation of $S(p,w)\cdot p=0$
Can anyone provide an intuitive explanation of why the Slutsky matrix right multiplied by the price vector yields a zero matrix?
I know this is true but I do not really understand why it is true. ...
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Are There Giffen Inputs?
I am studying for my candidacy exams and I came across this question on a previous exam. The question is in the TFD (True, False, Debatable) section of the exam. The claim is:
There are no Giffen ...
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Calculus and Indifference Curves in an Urban Economics Example
I am reading the paper 'The Structure of Urban Equilibria' by Jan Brueckner.
It uses a monocentric city model, where all consumers earn income $y$ at the centre of the city. They buy $q$ housing for ...
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second order stochastic dominance without the same mean
Let $F$ and $G$ be two distributions with the same mean. $F$ is said to second order stochastically dominate (SOSD) $G$ if
$$\int u(x)\mathrm dF(x)\ge \int u(x)\mathrm dG(x)\tag{1}$$
for all ...
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Examples of Applied Micro Paper with R (!) Code and Data in Public Repository
Can anyone suggest examples of relatively simple applied micro papers (e.g. an RCT or straightforward regression model) of possible interest to a general audience, that have their data and code, ...
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How does Google price the items on Google Play?
I am a fledgling computer science researcher working in intersection of economics and computation. Please excuse me if this question seems out of place to the administrator.
I am currently studying ...
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Why does quantity supplied increase with price in economics?
The Law of Supply is my worst enemy in economics because I could never truly understand it, and as a result, the stuff I learned after that was built on a weak foundation. The Law of Demand is totally ...
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Is scalping tickets harmful?
IMHO, scalping tickets is no different from legitimate arbitrage unless manipulative.
Iirc, arbitrage increases surplus and hindering scalping is setting a price ceiling which leads to deadweight ...
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Intuition behind risk premium
In Lecture 20 of MIT's Microeconomics course, a situation is proposed where a 50/50 bet will either result in losing \$100 or gaining \$125 with a starting wealth of \$100. It is stated that a person ...
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