As of May 31, 2023, we have updated our Code of Conduct.

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).

Filter by
Sorted by
Tagged with
3 votes
4 answers
1k views

Why are second price auctions preferred if they don't maximize expected revenue?

The reasoning usually given for why you would use a second price auction (SPA) as opposed to a first price auction (FPA) is that FPA encourage underbidding while SPA encourage truthful bidding. That ...
Steve's user avatar
  • 131
3 votes
2 answers
721 views

Subgame Perfect Nash equilibrium: two stage game

Charitable organizations are ranked according to the proportion of their total budget that is spend on programs(what directly goes to the recipients of their services) relative to money spent on ...
Stefanos Makridis's user avatar
2 votes
4 answers
2k views

Is the market price objective?

Is the market price objective, does it exist independently of human consciousness, how do we treat the market price in economics and the philosophy of economics? The market price is the current price ...
George Ntoulos's user avatar
2 votes
1 answer
229 views

Kuhn-Tucker and optimization (continue)

This is a question related to the question: Kuhn-Tucker optimization problem and game theory .The question is: Some cultures emphasize more social interaction more than others. Is there a role for ...
Stefanos Makridis's user avatar
2 votes
1 answer
67 views

Is possible that, in a choice structure $(B,C)$, $C(b) = \emptyset$, for some $b \in B$

It is a very simple question but with some implications. I just start reading Mas-Colell and it's not clear for me if it is possible a choice structure, $(B,C(.))$, where $\exists b \in B, C(b)= \...
49328481's user avatar
2 votes
2 answers
5k views

Difference between Giffen and inferior goods. Why aren't all inferior goods Giffen goods?

What is the difference between an inferior good and a Giffen good? Are the two following definitions for an inferior good equivalent? Def 1: An inferior good is a good for which the demand decreases ...
John's user avatar
  • 266
1 vote
1 answer
5k views

What is the difference between average cost and marginal cost?

$$AC(q) = \frac {C(q)}{q}$$ $$MC(q) = \frac{\partial C(q)}{\partial q}$$ These are the definitions. But I don't understand what the difference is. Is the average cost the cost per unit while the ...
Stan Shunpike's user avatar
1 vote
4 answers
17k views

Will price increase as demand increase?

I know the law of demand which states that if price of a product increases then the demand will decrease In this, I think we assume that price is a function of demand. But I feel otherwise i.e. ...
humble's user avatar
  • 113
1 vote
2 answers
3k views

convexity of the profit function for profit maximization

the profit function is convex in prices and wages (output and input prices respectively). How does this interact with profit maximization since convexity implies tangents always lie below the curve I ...
MHall's user avatar
  • 326
1 vote
2 answers
2k views

Supply curve for a competitive firm with constant MC

I know that for a perfectly competitive firm, the supply curve is given by $p=MC \ge AVC$, where $AVC$ is the average variable cost. Now I get really confused when the $MC$ comes out to be a constant....
Vizag's user avatar
  • 224
1 vote
1 answer
74 views

Maximized tax revenue & foreign labor

I'm dealing with a tricky assignment, and I have no idea of where to begin. Person 1 lives in Denmark and has a utility function given by, $$(1) \ \ u(c,l)=c-\frac{\eta}{\eta+1}(24-l)^{\frac{\eta+1}{\...
Matt's user avatar
  • 25
1 vote
3 answers
455 views

The law of supply and demand - How does it work?

I've learned what the principle of supply and demand says, and would paraphrase it like this: The price of a good is at equilibrium when supply and demand are equal. Or with other words: The price ...
Hans-Peter Stricker's user avatar
1 vote
1 answer
14k views

Income and substitution effect for perfect substitutes

I was recently asked about what the income and substitution effects are for perfect substitutes are. Given the rather peicewise nature of the demands for each good in a utility function considering ...
EconJohn's user avatar
  • 8,034
0 votes
1 answer
94 views

How do I get to this demand function in the monocentric city model?

I need to get this resulting price and quantity (housing): It's pretty clear that the denominator of the quantity function is just the price function. From this utility function: And this constraint:...
Victor Nielsen's user avatar
0 votes
1 answer
436 views

Question on oligopoly.

Consider an oligopoly between two identical firms producing a homogenous good with constant marginal cost where firms face linear market demand. $B_i(q_j)$ denotes firm i’s best response given the ...
studentp's user avatar
  • 110
0 votes
1 answer
306 views

Identifying utility function

I recently came across a utility function with min written at the start. I assumed that it was a case of a leontief utility function, and only after going ahead with the problem I found out that it is ...
user708015's user avatar
0 votes
0 answers
82 views

Principal agent problem

The shareholders of PC (The Principal cooperation) are about to present a contract to a potential project manager. If she signs the contract, the manager has two choices: If she goofs off (exerts low ...
studentp's user avatar
  • 110
0 votes
1 answer
75 views

Mathematical definition of perfect substitutes

If $X$ and $Y$ are perfect substitutes such that a unit of $X$ can be replaced by $n$ units of $Y$, how do we get the mathematical equation from it? I know the equation is of the form $ax+by$ (and $U =...
not tdm's twin's user avatar
26 votes
4 answers
82k views

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 ...
Bravo's user avatar
  • 1,699
16 votes
5 answers
5k views

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 ...
user avatar
15 votes
3 answers
2k views

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 ...
möbius's user avatar
  • 553
11 votes
1 answer
719 views

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 ...
StevenRJClarke1985's user avatar
11 votes
1 answer
314 views

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 ...
pareshnakhe's user avatar
10 votes
4 answers
3k views

The Sonnenschein-Mantel-Debreu results, what are the implications for macroeconomics?

I have always wondered why such a negative result such as Sonnenschein–Mantel–Debreu theorem (SMD) theorem is usually ignored or disregarded by practitioners, specially in macro. The result roughly ...
user157623's user avatar
  • 1,423
10 votes
3 answers
1k views

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 $A$. ...
Keshav Srinivasan's user avatar
10 votes
3 answers
3k views

CES Production Function with $\rho>1$

In using CES production functions of the form $f(x_1,x_2)=(x_1^\rho+x_2^\rho)^{1/\rho} $, we always assume that $\rho\leq1$. Why do we make that assumption? I understand that if $\rho>1$, the ...
Sher Afghan's user avatar
10 votes
3 answers
14k views

How to show that a homothetic utility function has demand functions which are linear in income

A homothetic utility function is one which is a monotonic transformation of a homogeneous utility function. I am asked to show that if a utility function is homothetic then the associated demand ...
MHall's user avatar
  • 326
10 votes
8 answers
21k views

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 ...
tphilli's user avatar
  • 285
9 votes
2 answers
1k views

Thin indifference curves

If a consumer follows the rationality axiom of continuity (i.e. no jumps in his preferences), the indifference curves of a utility function are said to be thin. Why does continuity ($x \succeq y \...
Omrane's user avatar
  • 448
9 votes
4 answers
7k views

Existence of utility representation of a rational but discontinuous preference

This is related to Do discontinuous preferences imply no continuous utility function? I think the title of the above-linked question is phrased in such a way that obscures a subtly different but more ...
Herr K.'s user avatar
  • 15.3k
9 votes
5 answers
1k views

Are terrorists rational?

Terrorism in general, and suicidal terrorism in particular, is popularly seen as “irrational,” but many economists and political scientists argue otherwise. This quote is from Terrorism: The ...
emeryville's user avatar
  • 6,865
6 votes
1 answer
702 views

Does the envelope theorem hold at a corner solution?

Suppose we have the following production function: $$F(L,K)=\max_{L_K}H(L,L_K,K)=\max_{L_K}\left[(L-L_K+1)^\alpha(L_K+K)^{1-\alpha}\right]=(L-L_K^*+1)^\alpha(L_K^*+K)^{1-\alpha}$$ With the ...
user56834's user avatar
  • 835
6 votes
2 answers
2k views

Risk Premium in the Expected Utility Theory

Consider an agent with utility function $u$, initial wealth $\omega$, and a random variable $x$. By definition of the risk premium $R$, we have $$ Eu(w+x) = u(w+E(x)-R). $$ The classical derivation ...
emeryville's user avatar
  • 6,865
6 votes
1 answer
2k views

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 ...
axsk's user avatar
  • 61
6 votes
0 answers
327 views

Pure exchange economy: Set of multiple equilibria endowments

Initial endowments which can result in multiple equilibria in a pure exchange economy are explained here. Given a pure exchange economy, that is given the utility functions (which fulfil the usual ...
Giskard's user avatar
  • 28.1k
6 votes
1 answer
410 views

Does vNM rationality depend on the good chosen?

The von Neumann-Morgenstern theorem states that, assuming a person's preferences under risk satisfy certain rationality axioms, then there exists a utility function u, the von Neumann utility function,...
Keshav Srinivasan's user avatar
6 votes
5 answers
2k views

list of math intense graduate level microeconomics books?

List of math intense graduate level microeconomics books? Except Reny's book, krep's books, varian's book and mas-collell's book books from subfields are acceptable, however by math intense i mean ...
Victor's user avatar
  • 733
6 votes
2 answers
844 views

Does a General Equilibrium here require Pareto Optimality?

There are two consumers $A$ and $B$, and two producers $X$ and $Y$. he consumers are endowed with labour(L) and capital(K) $L_A,K_A$, and $L_B,K_B$ respectively. The preferences of the two consumers ...
freebird's user avatar
6 votes
2 answers
2k views

Why do so many models assume homothetic preferences?

...when Engels Law, backed by a good amount empirical evidence, demonstrates that overall consumer preferences are not homothetic. See for example, Jorgenson (1997)
StatsScared's user avatar
6 votes
1 answer
179 views

Is there a reproducibility crisis in Economics?

I am an undergraduate economics student, and came across this paper by John Ionnadis on 'The Power of Bias in Economics Research'. the findings are quite bleak. https://academic.oup.com/ej/article/...
riemann_lebesgue's user avatar
5 votes
2 answers
11k views

How to derive utility possibility frontier?

I'm trying to derive the utility possibility frontier of a economy whose consumption contract curve is $$y_A = \frac {y} {x} x_A$$ and $$y_B = \frac {y} {x} x_B$$where $x_A + x_B = x$ and $y_A + y_B= ...
dexter's user avatar
  • 389
5 votes
1 answer
561 views

Is the consumer surplus on a Giffen/Veblen good negative?

When drawing the demand and supply curves on a quantity/product space for an upwards sloping demand, assuming the two curves intersect, I noticed that the traditional consumer surplus region lies ...
tox123's user avatar
  • 153
5 votes
2 answers
676 views

Does consumer theory assume that utility functions are consistent overtime?

I'm interested in how we model a consumer with a changing utility function over time. Example: an individual's demand for candy/sweets at 10 years of age will be different when he is 20,30 or 40 ...
EconJohn's user avatar
  • 8,034
5 votes
1 answer
12k views

Is MRS supposed to have a minus sign or not? What's there to say about convexity of preferences?

If we have a utility function $U(x_1, x_2) = x_1(x_2+1)^2$ of some consumer, then $$MRS_{x_1, x_2} = \frac{\color{red}{-}(x_2+1)}{2x_1}$$ Some books have a $\color{red}{-}$. Others and Wiki don't ...
BCLC's user avatar
  • 360
5 votes
2 answers
17k views

Cobb-Douglas and Logarithm Utility Functions

Suppose I have a consumer with a utility function $U(x,y) = x^\alpha y ^{1-\alpha} $ where $a \in (0,1)$. Suppose this consumer has wealth $w$ and the prices for $x$ and $y$ are $p_x$ and $p_y$ ...
Stan Shunpike's user avatar
5 votes
2 answers
3k views

Do discontinuous preferences imply no continuous utility function?

I am trying to think of a preference relation that can be represented by a utility function but such that there does not exist a continuous utility function. I know that you can represent continuous ...
user345's user avatar
  • 153
5 votes
2 answers
180 views

Utility function for introductory microeconomics

What are the utility functions standardly used in introductory microeconomics courses. My own list would include Perfect substitutes: $U(x,y) = ax+by$ Perfect complements: $U(x,y) = \min(ax,by)$ Cobb ...
Jesper Hybel's user avatar
  • 3,256
5 votes
1 answer
514 views

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 ...
Stan Shunpike's user avatar
5 votes
1 answer
2k views

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 ...
Kama's user avatar
  • 51
5 votes
3 answers
869 views

Why labour, capital, and output levels cannot be pinned down in perfect competition?

Consider a firm producing with the following technology: \begin{equation} Y = AL^{\alpha}K^{\beta} \end{equation} Assuming that factors are paid their marginal contribution to output, it can be ...
luchonacho's user avatar
  • 8,542