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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Can an inferior good be necessary?
Usually the definition of necessary goods is the income elasticity between 0 and 1. But can a good with -0.5 income elasticity be considered necessary? There is this link that says that all the ...
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Better Model for Dynamic pricing - Stackelberg model or Bertrand model
Objective - I am building a dynamic pricing tool for airline tickets which will consider the competitor prices. Taking competitor price as reference, this tool will price the ticket. Also instead of ...
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2answers
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Is it true that for Cobb-Douglas preferences, the demand function is always iso-elastic?
As we know that $Q*P=const.$ for Cobb-Douglas preferences, we can thus conclude that $\frac{dQ/Q}{dP/P}$ is always $-1$:
$$
QP=const. \implies 0=d(PQ)=Q\ dP+P\ dQ \implies \frac{dQ}{Q}=-\frac{dP}{P}
$$...
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1answer
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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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3answers
186 views
How was the Cobb Douglas function derived?
In economics and econometrics, the Cobb–Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the ...
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7answers
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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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5answers
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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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6answers
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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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3answers
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Why min AC = min SRAC at the minima of AC curve?
At the lowest point of long run average cost curve AC, the SAC is also at its minimum and that is not the case with any other SAC curve bounded by the envelope. Why is that?
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1answer
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How do I determine PED from price consumption curve with slope of zero?
Given a budget for two goods $x_1$ and $x_2$, a fixed price for good 2 and three prices for good 1 with the corresponding optimal amount of good 1 ($x_1$), I like to calculate the PED for good 1.
By ...
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1answer
58 views
Without knowing the Slutsky equation and income/substitution effect, how can I show a certain good is inferior or Giffen?
Say I've got a function $x_1(p_1,p_2,m)$ where $p_1, p_2$ are the prices for good 1, good 2 respectively and m is the income.
Now, I haven't heard of the Slutsky equation yet nor the income/...
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Relation of Engel-curve to income elasticity of demand; is the slope of the Engel-curve equal to the elasticity of income?
I learnt that $\frac{\Delta x}{\Delta m} \gt 0$ for normal goods, $\frac{\Delta x}{\Delta m} \lt 0$ for inferior goods, $\frac{\Delta x}{\Delta m} \gt 1$ for luxury goods and $0 \lt \frac{\Delta x}{\...
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Two quasilinear utility functions
Suppose there are two agents $\{A,B\}$ with the following utility functions: $U_A(x_A,y_A)=x_A+f(y_A)$ and $U_B(x_B,y_B)=x_B+g(y_B)$
$f$ and $g$ are strictly increasing and strictly concave. How do I ...
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1answer
78 views
Lecture notes competitive labor market with minimum wage
Can somebody recommend lecture notes that derive competitive labour market model equilibrium with minimum wages? This has been surprisingly hard to find, because most lecture notes use minimum wages ...
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2answers
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What is the purpose of the local non-satiation assumption in the first welfare theorem?
The profit maximization assumption implies
$$\text{if } x_i \succ x_i^* \text{ then } p_ix_i > p_i w_i$$
Okay so this just says if the agent is utility maximizing / rational, then if he doesn't ...
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2answers
543 views
How exactly does elasticity relate to slope?
My book (Goodwin's Microeconomics in Context, pg. 117) states the following about price-elasticity of demand:
Given two demand curves that go through a specific point on graphs with the same scale, ...
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1answer
116 views
How to prove a generalised function is quasiconcave?
I have a question I have been asked to solve:
Given that $(a_1, a_2,...,a_n)\in R_{++}^n$ and $(x_1, x_2,...,x_n)\in R_{++}^n$, and $A>0, \mu >0, p \neq 0$, if there is a function $f(x)=A(a_1x_1^...
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1answer
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Two Sellers, One Buyer Auction
Consider the following game. There are two sellers, each of whom can produce one unit of
an indivisible good. The cost of producing the unit for seller i is $c_i$
. There is a single buyer
who wishes ...
2
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1answer
115 views
Multiple Forgone Job Opportunities and Economic Profit
I'm told that forgone job opportunities are implicit costs, to be included in calculating economic profit, but I can't seem to see how I could list and consider many different forgone opportunities. ...
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0answers
66 views
Finding long run total cost function
I am trying to find the long run total cost function, given the firm's production function $y=L^α K^β$ where $α,β>0$ and two inputs $L$ and $K$ where $ L,K∈R_+^2$, with factor prices $w$ and $r$ ...
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Theoretical models of copyright infringement and efficiency implications
I wanted to know if there are theoretical models of copyright infringement and what are their implications for efficiency in the market and also, if possible, any empirical support they have.
When I ...
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1answer
33 views
Proximity-concentration hypothesis: homogeneous firms and symmetric countries
Hi everyone I am running into a stone wall and don't seem to be able to solve this, can someone show me the steps how I can insert 1 into 2 and get 3.
$B=\frac{f_E+f_D}{φ^{(σ−1)}*(1+τ^{(1-σ)})}$
$π =...
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1answer
62 views
Is an income tax always more favourable for consumers compared to ad valorem/quantity tax?
I'm studying the optimal choice of consumers with regards to taxation.
I read that for consumers, income tax is generally (for Cobb-Douglas preferences) preferred compared to ad valorem tax:
If the ...
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2answers
440 views
Finding demand functions for an unusual utility function
I have a utility function: $U = x + \min\{x,y\}$
I want to draw the indifference curve and find the demand functions. Will it be the case of the usual perfect complements?
Also, what preferences ...
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2answers
270 views
Where do the rich and poor live in a city? (Calculus)
I am reading 'Cities, Agglomeration and Spatial Equilibrium' by Ed Glaeser.
People live in a monocentric city, where consumers of heterogeneous income $y$ work at the centre of the city. They buy $H(...
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1answer
55 views
How is AVC(Average Variable Cost) ‘U’ shaped because of the principle of variable Proportions? [closed]
How is AVC(Average Variable Cost) ‘U’ shaped because of the principle of variable Proportions?
How are average variable cost(AVC) and marginal product(MP) related?
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0answers
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Quote or price driven markets
Where can I find some details about quote driven markets? Can anybody show any notes or provide some paradigm about what the trader sees when he is about to trade in such a market? They say that he/...
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2answers
82 views
Auction Theory: Proving that the found equilibrium is indeed optimal
I have been looking at auction theory and in the book Auction Theory by Krishna, there is one (seemingly simple) inequality that I just cannot follow.
Context: given a private valuation $x$, the ...
2
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1answer
71 views
Why is the derivative of a monotonic transformation of a utility function assumed to always be greater than 0?
I'm looking into utility functions and their relation to indifference curves.
Now, I understand a positive monotonic transformation does not change the order (it's a rank-preserving transformation).
I ...
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1answer
74 views
Approaches in demand analysis
What is the difference between Engel Curve and the system approach of demand analysis?
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1answer
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What are the advantages of using demand systems estimation? How is this different from individual demand estimation for product?
I don't understand how is demand systems estimation is different from simple demand equation estimation. What's the best resource for getting a history line of demand systems?
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Nash equilibrium with three players
Consider the game below played by three players. Player 1 chooses one of the rows (T vs B). Player 2 chooses one of the columns (L vs R). Player 3 chooses one of the three tables (A vs B vs C). Each ...
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1answer
368 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 ...
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1answer
62 views
How do I use a monopsony (product market) graph to show that a firm has more buying power over a supplier?
For instance, Tesco has more buying power over British farmers. How would I show this on a monopsony graph where Tesco has a surplus?
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2answers
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Convex rationalization when the budget sets are segments?
Backgroud:
SARP can be defined on general budget set.
SARP: Assume for all $B$ the choice $c(B)$ is only one element. If $x_i,x_{i+1}\in B_i$, and $x_i = c(B_i)$, for all $i\in \{1,N-1\}$, then $x_1=...
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1answer
125 views
Consumer Utility Maximization equivalent of economies of scope
Economies of scope captures the idea of having efficiency in variety. I've come across this idea only in producer theory to capture the idea that companies may benefit from their ability to reduce ...
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2answers
45 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
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0answers
37 views
Strange screening game were FS contracts equals optimal contracts
Consider the setting where a principal hires an agent to do a project. Payoff from project is $\pi = \beta e$, where $\beta \in \{1,2\}$ is the degree of the agent's talent and $e \in [0, +\infty]$ is ...
2
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1answer
103 views
Proof that two utility functions $u(x_1,x_2) \text{ and } v(x_1,x_2)$ with the same MRS represent the same preference
I am having some difficulty proving that two utility functions with the same marginal rate of substitution represent the same preference. I think I need two use some argument related to strictly ...
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0answers
10 views
Inter country currency exchange [duplicate]
This is probably a stupid question as I don't know much about economics, please bear with me. My question is; why can't a country insist on the worth of their currency relative to the dollar. For ...
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1answer
50 views
Utility maximization: pollution and housing prices
A factory releases a toxic pollutant which causes two types of damage to a representative area resident whose utility function is $U(S,H,x)= a \cdot \log(S) + b \cdot \log(H) + c \cdot \log (x)$ where ...
2
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2answers
141 views
Game theory and differential equations
Does anybody know, any (advanced/classic) textbook that combines game theory with differential equations in mathematical economics. Specifically, I an interested in asymmetric information problems.
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1answer
1k views
How to find the maximum profit in a graph?
We know the maximum profit will occur at the quantity where the gap of total revenue over total cost is largest. But how can we find such gap?
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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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1answer
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GARP and SARP assumed mononticity?
Monotonicity means the decision maker prefer more goods than less. It is not mentioned in textbook that SARP and GARP preasumed monotonicity, implicitly.
GARP: if $a$ is indirectly revealed preferred ...
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2answers
112 views
How to estimate loss of customers due to customer support inefficiency?
I have a data about customers and their activity on a website for a two-year period. Also, I have a customer support work evaluation data for a shorter period of that two-year period. The question 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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1answer
50 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 ...
3
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0answers
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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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2answers
112 views
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 ...
