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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How to determine demand without the price of a good?

If I have the utility function of an individual that exhibits perfect substitutes, think (U=ax+by), and I'm given the price of good x and the budget M, then how am I supposed to determine the demand ...
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When a relevant variable unnamed on either axis changes, can the curve NOT shift?

Source: pp 40-41, Principles of Microeconomics, 7 Ed, 2014, by N Gregory Mankiw her demand curve would shift to the left (to curve D3). In economics, it is important to distinguish between ...
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Why do firms bother to produce at equilibrium quantities if at equilibrium quantity, MR < MC?

For almost all demand curves, the resulting marginal revenue curve is often to the left of and steeper than the demand curve. The marginal cost curve has its distinctive U-shape, and a particular ...
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Impact of government subsidy on labour supply

If the government pays a certain amount $b>0$ to every person who is not working, what is the impact of this subsidy on labour supply? How does it alter the reservation wage? Is your answer ...
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Why are we taking the logarithm for risk-averse decision-makers?

I'm a mathematics student learning a bit of Game theory. Many examples are given within a very economic setting and up to know I could follow most of it because they were very basic and I learnt some ...
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Do capital goods have to be valued so that (discounted) real expected return on capital goods equal current present value of capital goods?

Let $P_k$ be the value of 1 quantity of a capital good. If one does not sell the capital good and keep it, the good provides interests. In such a case, does standard macro say that all expected ...
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Does price affect quantity or vice versa?

On nearly all graphs found within economics textbooks, quantity is label on the x-axis and price on the y-axis, implying that the quantity supplied affects the price. Is this really so? Intuition ...
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Perfect competition: Finding short run equilibrium price?

I am trying to self teach myself some Economics, I am using an old textbook given to me by a friend, which does not contain an answer key. I have run into the following problem and I was wondering if ...
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Solving for optimal consumption bundle

Consider a consumer who can consume either A or B, with the quantities being denoted by $a$ and $b$ respectively. If the utility function of the consumer is given by $$-[(10-a)^2+(10-b)^2]$$(suppose ...
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How to find walrasian asignations? [closed]

In a economy Arrow Debreau of pure exchange with two agents and two goods. With utility function of Leontief for agent B, where $U_b(x_b,y_b)=\min(x_b,y_b)$; and for agent A a simple Cobb-Douglas $U_a(...
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Impact of working capital constraints onto output

I'm looking for empirical evidence (optimally from natural experiments, as described below) of the impact of working capital constraints onto firm output, and the differentials of firm size. I ...
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Where can I find quarterly/monthly medicare/medicaid state level drug utilization data

I read a paper titled 'State generic substitution laws can lower drug outlays under medicaid'. It uses quarterly state level medicaid drug utilization data. However, I could only find yearly data at ...
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Suitable terminology for the inverse elasticity?

In many microeconomic applications (e.g. monopoly price-setting) the inverse elasticity appears. Explaining such relations to laymen is often awkward because inverse proportionality is not as ...
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If all firms in an economy are in monopolistic competition with constant elasticity of substitution, can they profit-maximize at $MC=MR=AC$?

Suppose all firms are monopolistically competitive with constant elasticity of substitution. Can they profit maximize at the quantity point $MC=AC$ (So $P \neq MC$ but $Q$ is set at where $MC=MR=AC$ ...
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Basic microeconomics: supply, demand and substitutes in production

The question is: explain the change in the market for skim milk, if demand for ice cream rises. I'd say these two are unrelated in consumption (saying they're substitutes is kind of stretching it), ...
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Books for microeconomics and macroeconomics for selected topics

I am a mathematics undergraduate trying to self-learn some economics. I have no background in economics. I wish to know from which chapters of Hal Varian's "Intermediate Microeconomics" (7th edition) ...
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Converting word definitions of Pareto-Optimal into math symbols

I'd like to have a mathematical version of the following two definitions just because I remember symbols better than words. But I lack the math prowess to convert them from words to symbols. Can ...
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Random Choice interpretation

Due to McFadden Economists usually interpret Random Choice, in the population sense, as each DM being drawn from the probabilistic choice rule independently and identically. However, Psychologist have ...
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When using consumables consider the purchase or market price?

Say I use two fuels to heat my home (space heating): oil and wood. I purchase both in bulk, at a price decided at the time of purchase. Wood is cheaper per kWh, but I purchase both because oil has ...
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445 views

Intuition behind the linkage principle

An important result in auction theory is Milgrom & Weber's linkage principle, which, roughly, holds that the expected revenue from an auction is higher is the seller commits ex ante to reveal as ...
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Difference between 'surplus' and 'welfare'

I see these two terms used interchangeably but I have the feeling they are not exactly the same. My gut feeling tells me this: 1) Surplus is the additional aggregate utility from the existence of one ...
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Collusion model with imperfect public monitoring

It is well known that consumers' intertemporal incentives may play a key role on the potential of firms to sustain collusion. To my knowledge, most previous efforts studying the topic have assumed ...
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Oligopolistic producers and retail price wars

Consider an industry with few producers selling differentiated products. The products must be sold through retailers of whom also there are a few and who therefore possess some degree of market power. ...
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Random Utility interpretation

Can someone explain intuitively, the Block-Marschack Polynomials that completely characterize random utility.
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Is non-monotonic local non-satiation supported by consumer theory in economics?

In general (Walrasian) equilibrium, local non-satiation is one of the assumptions that guarantee existence of equilibrium. Question is, is non-monotonic local non-satiation preference supported by ...
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How is labor disutility modeled in Arrow-Debreu model?

In DSGE models, utility function contains labor disutility components. But I cannot not see how labor disutility is incorporated in Arrow-Debreu-Mackenzie model.
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Is special case of utility function in “Intertemporal Substitution in Macroeconomics” also a special case of a Ramsey growth model utility function?

So in RBC and Ramsey-derived utility function, the following is usually the form of utility: $$u(c,l) = c^{1-\sigma}(1 + \omega(l))$$ where $\omega(l)$ is arbitrary function of $l$, labor, that ...
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What is the advantage and disadvantage to have a high value of USD for USA?

What is the advantage and disadvantage to have a high value of USD for USA? China and Japan always want to keep their currency low as oppose to USA.
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Does rioting impair the economy?

In this article, the author looks at some of the indirect effects caused by the rioting in Ferguson, Missouri after the jury's decision not to indict the police officer. He explains that the rioting ...
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why is real wage divided by marginal product of labor often called real marginal cost?

As said in the title, why is real wage divided by marginal product of labor often called real marginal cost? In mathematical formula, $mc_t = (W_t/P_t)/MPN_t$ where $MPN_t$ refers to marginal product ...
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Are there any economic studies of License-On-Transfer agreements?

A recent entry at GitHub's blog caught my attention: https://github.com/LOT. The "network" claims to provide protection from patent trolls by entering into an agreement automatically granting all ...
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Is it possible to derive indifference curves given marshallian demand function?

In a two good world, will a marshallian demand function the likes of D(p,m) where p is the price of one good and m the income yield a utility function or ...
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Usage of natural gas in 1970 (where was the demand elasticity?)

The following historical graph of US Marketable Natural Gas volume has me puzzled: How was the gas used in 1970 (a peak production period), given that we would seem to be using a lot more gas now? ...
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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, ...
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Is this supply and demand reasoning in Picketty's book circular?

In his hugely successful book, Thomas Piketty writes: To be sure, there exists in principle a quite simple economic mechanism that should restore equilibrium to the process: the mechanism of supply ...
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The Savage sure thing principle and Subjective utility representation

I have tried reading and understanding Savage's proof of the subjective utility representation, it is too complicated. Is anyone aware of a shorter/more elegant proof of this? It is not a problem if ...
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What's is the purpose of “conditional preferences” as specified in Savage's framework?

In this paper, "Savages’ Subjective Expected Utility Model" by Edi Karni, he gives a definition of "conditional preferences." See here: What situation is this supposed to capture? It seems like it ...
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Ambiguous definition of Substitution and Income effect?

Consider the (schematic) indifference curve diagram of two good-quantities Q1, Q2: According to Wikipedia we call the vector AB' the substitution effect and the vector B'B as the income effect. I ...
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Is there a class of demand functions that deliver equal surplus to consumers and a monopolist?

Consider a market with a monopolist firm that has zero marginal cost and faces demand $D(p;\mathbf{a})$, where $\mathbf{a}$ is a vector of parameters and $p$ is the price. The monopolist maximizes ...
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502 views

Recover cost function from profit function

How do I recover the cost function from the profit function? Suppose I have $$ \pi(p, w_1, w_2) = p^3 \cdot w_1 \cdot w_2 $$. How do I get the cost function? Using Hotelling's lemma I get the ...
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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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What is the main cause of differences in the costs of living?

Following question is not formulated in technical language of economics, since I am not an economist and I am mostly interested in accessible answers. Yet, I think it goes deeply into theory of ...
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What are different ways of specifying utility and decision making?

This question is related to this question about the Machina paradox and about the expected utility model. In this question, I'd like to know a little more about various or even competing ways of ...
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Marginal buyer/seller as determinant of price

In competitive markets without frictions, the marginal buyer/seller determine the price. To what extent is this argument true in markets where a fraction of the sellers are constrained? Think about ...
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Price dispersion in online retail

There are a number of online booksellers that are popular in India right now. The prices they charge for the same book often differ by as much as 10% (See this price comparison site to check http://...
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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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Is there some kind of consensus on the determinant factors of education achievement?

There is quite a bit of literature on the economics of education. One of the most debated aspects of it arises when estimating the achievement of the student (usually in the form of standardized test ...

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