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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329 views

How to calculate income and substitution effect when equal marginal principle is violated

I am trying to calculate substitution and income effect for 2 goods, $x$ and $y$. Given that marginal utility $\mathrm{MU}_x = 1$, marginal utility $\mathrm{MU}_y = -a$ (unknown number), price of $...
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MWG Example 3.E.1

I do not understand how Mas-Collel, Whinston, and Green derive the Hicksian demand functions in Example 3.E.1 in their textbook. Allow me to give further background regarding the problem: The ...
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Questions about the Edgeworth box

I have some doubts about the Edgeworth box, it's a newbie one so thanks in advance for the patience. In case, I'm confused if we can count the root of the contract curve (point M) as one of the ...
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Regarding the Expenditure Function Underlying a Bliss Point

I've been looking at expenditure systems and have been really interested in the behaviour of the demand system that underlies bliss points: Consider the bliss point utility function of the following ...
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What is the difference between microeconomics money and macroeconomics money?

In microeconomics, \$USD are a store of value. I can sell a candy bar for \$1, and I can hang onto that \$1 for a year and then buy the same candy bar for that same \$1. If I print \$1 (and get away ...
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Where to begin with solving this table on Total Cost analysis?

I've been working on solving a table for the past hour or so, I'm completely lost as it appears the values aren't quite correct, this is what we've been given to solve: We've been given that the ...
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Question about MWG 17.D.1

I tried to solve by myself the exercises of MWG(Mas Colell). However, I think the exercise has an error at 17.D.1. The 17.D.1 asks us that "verify that there are multiple equilibria". However, The ...
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Existence of market sharing equilibrium in hotelling model

I'm reading a paper on Competition in Two-Sided Markets. The model is a Hotelling-type model, with consumers on some interval, choosing their preferred firm based on price and 'distance' to the ...
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REE with asymmetric information and Bayesian Nash equilibrium?

What is the difference between a Rational Expectations Equilibrium (REE) with asymmetric information and Bayesian Nash Equilibrium (BNE)? Since agents in both cases play some game or have a strategic ...
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Which think-tanks on economics do you use to keep up with the news?

Whenever I have spare time, I like to go to Bruegel site and check their section on publications in macroeconomics. Here I usually find small publications of 20 something pages. The size is just about ...
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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}{...
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Market mechanism design and decision rule based on a graph

I am doing a micro course right now. I came upon this question while studying and I was hoping for help/hints on how to solve it or what resources to consult to better understand the topic. the ...
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2answers
166 views

Derive demand function $x(p,w)$ from utility function $u(x) = \min\{x1, x2\} + x3$

I know how to solve the two-good case with $u(x) = \min\{x1, x2\}$, but the addition of $x3$ confuses me. Problem Derive the demand function $x(p,w)$ from $u(x) = \min\{x1, x2\} + x3$ What I did ...
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Study guide (and…) for “Intermediate Microeconomics with Calculus” by Varian

I have been googling study guides, solution manuals and other helpful material made by professors. But I have not found anything useful. Q: Do you guys know anything that will make the book easier ...
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Why does marginal cost slope upwards after the minimum point?

My textbook writes this on marginal cost: "The law of diminishing returns refers to the idea that as more of a factor (input) is used, with at least one fixed factor, there is some point at which the ...
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utility from providing public good as explained in Hindriks textbook

I think I understood the highlighted part: basically, by increasing $g^1$ my utility increases because more public good is being provided but at the same time it decreases because I have less money to ...
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1answer
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Does more variable input cause marginal product to decline?

Previously, I believed that after a certain point, additional variable input results in a decline in productivity. For example, if you hire too many waiters, they will eventually get in the way of ...
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2answers
106 views

Quasi concavity of utility function

I am looking for a method to prove that the following function is quasi-concave in $\alpha$ (or find conditions under which it is true): $ \pi=F(-k)(f(0)^2-f(h(1-\alpha))^2)+ \frac{1}{2}-\frac{1}{2}...
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Second welfare theorem problem

I would like to get a better understanding of part c of the following problem. It appears to me that Walrasian allocations do not change but I want to confirm whether I am right or not. Thanks. ...
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intertemporal utility maximisation

Adam's consumption period 1 and 2 are denoted by $c_1$ and $c_2$ respectively. His utility function is $U(c_1,c_2)=4c_1^{0.5} + c_2$ Ben earns an income of \$3 in period 1 and \$3 in period 2, ...
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weakly preferred consumer bundles

I am currently studying consumer choice and saw that weak preference refers to when an individual prefers or is indifferent to two bundles (such as bundle A and bundle B). I was wondering what is ...
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1answer
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What happens to consumer surplus and profits as firms get more information in Hotelling's duopoly model?

In the Duopoly on the line [0,1] with customers uniformly distributed, with firm A on the 0 side and firm B on 1's side, we know that if the firms have no information about the customer, there will be ...
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Certainty equivalent and risk premium

I'd like some guidance on the below practice question on uncertainty in consumer theory. I think I am confused on the certainty equivalent & risk premium or I'm not understanding the question. ...
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2answers
184 views

robinson economy with production

Facing a little bit of a problem with this questions, did a similar one BUT the utility function was not linear and got MRS dependent on goods (was not just a number) - here I am at a loss. The ...
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What is the difference between solving for utility maximization separately or aggregately?

I derived the Walrasian equilibrium for an economy of two consumers with their respective utility functions (u1, u2) and initial endowments but later on I am asked to maximize (u1+u2). Does anyone ...
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Does the term 'marginal' refer to the last consumer?

I was reading this answer on this website which talked about how MB = P at allocative efficiency. "Why does allocative efficiency occur when P=MC rather than MB=MC" In this answer, it is stated that ...
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Who is the first one to equate “rational” with “complete and transitive”?

MWG taught that, suppose that the menu is finite, "rational" is the same as "complete and transitive". But it seems that it does not cite any sources. Who said this first? vNM said in 1944 that their ...
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Who is the first person/paper to introduce “mixed strategy”?

Who is the first person/paper to introduce "mixed strategy"? The PNAS by Nash used this notion without citing anyone. Does the earlier book: Von Neumann, J., and Morgenstern, O., The Theory of Games ...
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Is there some definition about risk sharing?

I was searching for a definition of risk sharing and I have found the following: $\underline{Definition:}$ Risk Sharing — also known as "risk distribution," risk sharing means that the premiums and ...
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1answer
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Is a resource allocation problem in mechanism design a direct or indirect mechanism?

From L. Hurwicz's work and book "Designing Economic Mechanisms," I cannot figure out whether a resource allocation problem in mechanism design is a direct or indirect mechanism. I think the answer is ...
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1answer
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Intertemporal budget constraint notion

Let $W$ denote the investor's wealth $B$ is the the investment in the risk free asset (suppose that the risk free rate is taken to be zero) and $X$ is the investment on the risky security which has ...
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1answer
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Interpretation of $\frac{\partial }{\partial p_1}Q_1(p_1, p_2)/\frac{\partial}{\partial p_2} Q_1(p_1, p_2)$

I am interested in an economic interpretation for the ratio of partial derivatives of a demand function $Q_1(p_1, p_2)$, which is \begin{equation} t=\frac{\frac{\partial}{\partial p_1}Q_1(p_1, p_2)}{\...
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286 views

How to visually present a simultaneous game with continuous strategies

I've been asked to model a game where two players have an infinite choice of strategies and move simultaneously. The question asks to present the game in game table or extensive form, and to justify ...
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How can I prove $U(x) = [𝛼_1𝑥_1^𝜌+𝛼_2𝑥_2^𝜌]^{(1/𝜌)}$ is equal to Cobb-douglas Utility function when $𝜌\rightarrow0$ [closed]

This is the question, I have problem with part b, I don't know what function should I use to reach the result thanks in forward
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1answer
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How to calculate the degree of risk aversion of a consumer in a lottery?

To give an example, say we start with 100 dollars and we enter a lottery. With probability $\pi$, this 100 dollars is reduced by 2 dollars. Otherwise our endowed 100 dollars does not change. Let's say ...
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1answer
168 views

Why is the risk premium always positive for risk averse individuals?

I think this has to do with the definition of concavity and the fact that a risk averse person has a concave utility function, but I'm not sure how that helps.
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Is it correct to say opportunity cost is cost of giving up quantity of what you are selling?

In this video (https://m.youtube.com/watch?v=KEYYN-a_x6E), the instructor talks about the marginal opportunity cost and supply curve. (Begins talking about it at after 1:50). He states that the ...
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3answers
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Model of economic cycles consistent with efficient market hypothesis

I do not have background in economics, so my question may be naive or I might have taken incorrect assumptions somewhere. As far as I understand, efficient market hypothesis applies, saying that the ...
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how to explain the term “Compensated law of demand” in a plain way?

The term “compensated law of demand” I met in advanced microeconomics textbook, which appeared in “revealed Preference “
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What is the economic interpretation of this utility function?

I have a utility function $U(c,l)={{C^\alpha-1}\over {\alpha}}+{{l^\alpha-1}\over {\alpha}}$ where C denotes consumption, l denotes leisure. What is the economic interpretation of the term $\alpha$ ($\...
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56 views

Perfect Substitution with a Continuum of goods?

Imagine I have a continuum of different goods indexed by $\omega \in [0,1]$. I have a household which consumes a quantity $C(\omega)$ of good $\omega$, and pays a price $P(\omega)$. The household has ...
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1answer
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Pareto distribution and Lorenz curve

I am currently studying Pareto distributions and their relation to Lorenz curves but I am having a hard time understanding the concept. If I am understanding correctly, Lorenz curve describes the ...
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1answer
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Comparative Advantage Question

The theory of Comparative Advantage in production and trade specifies that countries should engage in the production of goods and services for which they have a comparative advantage or lower ...
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1answer
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Does utility in economics also refer to producer's surplus ? How to balance the consumer surplus and producer surplus?

I am confused about the use of utility in economics and how it relates to allocative efficiency. At 4:35 and 5:07 in this video (https://www.youtube.com/watch?v=9a3wXj1o91k) he talks about how at the ...
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1answer
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Contribution by each factor

Must admit it has been many years since I have done advanced calculations or anything remotely like it, so please bear with me. I have problem that I hope to get some help with. Say I have below ...
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Difference between Opportunity cost and marginal cost

I understand that the marginal cost is the cost of producing one additional unit of a good or service. Is it correct to say that the opportunity cost is part of the marginal cost (I'm trying to ...
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30 views

which is an example of demand curve that is always inelastic/elastic?

Which class of functions have the property of being always elastic?and instead always inelastic?
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67 views

Prove this indirect utility function is quasi-convex

The indirect utility function is as follows: $$ v(m,p) = \frac{m}{p_{1}^{1/2} p_{2}^{1/4} p_{3}^{1/4}} $$ I need to prove that it is quasi-convex. I tried both definition of a quasiconvex function ...
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1answer
72 views

Competitive vs complete and non-competitive vs incomplete marekts

The very insightful questions that arise, when someone studies micro foundation are the following: What is the difference between competitive and complete marekts? When we refer to the first is it ...
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1answer
72 views

Supporting Hyperplane Theorem and quasiconcave utility function

My notes says that if $u(.)$ is strictly quasiconcave and differentiable, by the supporting hyperplane theorem, there exists $p >>0$ and $w \geq 0$ such that $ x = x(p,w)$ $\forall x$. I am ...

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