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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61 views

What is an opportunity cost?

Mankiw's definition and explanation of opportunity cost here is confusing. Since when have explicit costs become part of opportunity cost? Here is what the guide says: The concept of opportunity ...
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Why is Engel curve a straight ray through the origin if $D_wx$ = x(p, 1)$?

I see in the textbook that the Engel curve will be straight if $D_wx(p,w) = x(p,1)$ but it's not immediately clear to me why this is the case. Could someone kindly explain to me?
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Two firms competing ala Cournot

So I´m a bit stuck on this one. There are two firms in the country that sell cars. Both sell Toyotas and they buy their cars directly from the manufacturer, which is Toyota. We can assume that ...
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Can i check monotonicity with the marginal utility?

For example I have a Cobb-Douglas utility function $U(x,y)$ and I want to check the monotonicity property. Can I use the marginal utility functions to see that they are always positive to conclude ...
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Utility function is given as U(x1, x2) = 10x 0.5 1 + 5x2

Given a utility function $U= {10x^{0.5}} + 5y$, calculate the MRS and explain its economic meaning. The MRS I calculated is $\frac{1}{\sqrt{x_1}}$, but I can't really understand it's economic meaning ...
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Why is that when one person or group gets a good or service, someone else will have to live without it?

! There's this statement in my Applied Economics book that I don't understand. Why is that when one person or group gets a good or service, someone else will have to live without it? I hope you ...
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Is there an externality if someone buys all stock of some merchandise?

Is there an externality if someone buys all stock of some merchandise? On one hand, if they buy all of everything and there's still demand then they've taken it away from other people. On the other ...
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Bertrand Duopoly Equilibrium for Discrete Prices

There are two identical firms, $1$ and $2$, with zero marginal costs. They produce homogenous product, which is demanded by a unit mass of identical consumers, each of which has inelastic unit demand ...
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Why does the price and wealth derivatives, weighted by the price and wealth, sum to 0?

From Mas-Colell, Whinston and Green (Microeconomic Theory), we have this proposition on page 27. If homogeneity holds, $$ \Sigma_{k=1}^{L} \frac{\partial x_l (p,w)}{\partial p_k} p_k + \frac{\partial ...
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Modeling risk aversion. Expected utility function

I want to model an Expected Utility Function for risk aversion but my problem is uncertainty in itself. I want a function(a special case) $$f(x, y) =\left\{\begin{matrix} h(bx^{1-C}+ay^{1-C}),C\neq 1\...
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Framing Effect Risk-Aversion Risk-Pursuit

I am an economics' graduate seeking to study Law and I want to illustrate the importance of legal certainty. Penalties, Costs are negativelly framed. I am trying to word. 200 dollars with 50% ...
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Indifference Curves and Preferences

Why are averages preferred to extremes on the same indifference curve? Doesn't everything along an indifference curve have the same preference?
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Rent dissipation meaning?

What is Rent dissipation? Please explain with an example. I tried to search it on the internet about it. And I couldn't find anything in simple language. It was the esoteric language and was unclear. ...
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How to determine the first bid for a Double-Bounded Dichotomous-Choice Contingent Valuation model?

I'm very new to the survey format of double-bounded dichotomous-choice for contingent valuation, so I apologize for my naive question. Could you please let me know how a researcher decides the initial ...
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91 views

A case where the solution to Expenditure Minimisation Problem is not a solution to Utility Maximistion Problem

I am looking for a preference relation which satisfies the above property.
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Most profitable conversion of stock into money

When Forbes-lists of top billionaires are published we are usually aghast of their riches and statements such as "the 8 richest people own as much as the poorer half" are disseminated. I was ...
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Set Theory Properties of the Budget Constraint

In Microeconomic theory, the budget constraint is defined by 4 distinct properties: It is Bounded Closed Convex Non-empty The 1. 2. and 4. are very straight forward and the benefits in terms of ...
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1answer
20 views

Monopolistic Competition- productive efficiency

In my textbook, it says that monopolistic competition will never lead to productive efficiency (where $MC=AC$) in the short run and long run. I understand that they are meant to be producing at the ...
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61 views

Macroeconomics v Microeconomics

Microeconomics concepts greatly help us to understand the broad aggregates which are used in Macroeconomics to understand the overall functioning of an economy but are there any ways in which ...
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Simulating a simple economy with … price-makers? arriving at competitive equilibrium

I'm new to economics and thinking about graduate study. My background is mathematics. I started reading a book on microeconomics by Mas-Colell, Whinston and Green. My goal is to understand how ...
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How to show that a leontief utility function is homothetic?

usually what i do to show that a utility function is homothetic is by either showing that the function is homogeneous or if the MRS is homogeneous of degree 0. However the MRS is not defined. So im ...
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1answer
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What is the difference between Common Goods and Common Pool Resources?

All this time I was thinking that common-pool resources are common goods, until I read this excerpt from a book.
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Why are prices made available to the public?

Price in micro is the point at which demand and supply meet. But in real world no one knows about the actual demand curve or supply curve. yet prices are set, so in a way there is a lot of costs being ...
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What do game theorists think of behavioural economics?

Though behavioural economics has been popularized over the past decade in both industry and pop culture, it seems that not much has changed with regard to the standard economic definition of ...
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How to derive Hicksian demand?

How can I derive Hicksian demand, when from the FOC I only get $\frac{p_x}{p_y} = \frac13$ without the usual x & y. So they cannot be derived directly from FOC, but if I plug the price relation ...
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1answer
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Derivation of aggregate demand function for Monopolistic Competition (based on Combes et. al, 2008)

A specialized question for those, who excel in monopolistic competition and modern trade theories. I am interested in a derivation of an aggregate demand function for a model of monopolistic ...
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What changes do I, as an individual, experience during a recession?

There is a lot of talk about how we're approaching an economic recession. There is plenty of talk about how that would affect the world at large, but I haven't really found much on the level of ...
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Difficulty Understanding CPI (Consumer Price Index)

Here's a question about CPI in my microeconomics text (Pindyck), which I don't seem to understand: The price of computers has fallen substantially over the past two decades. Use this drop in price ...
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Is expensive private school a rational investment?

In Australia, successive conservative Federal governments have increased the share of public funding for non-government schools, and for the top schools the amounts of annual funding are many millions ...
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1answer
51 views

Trembling hand perfection and weakly dominated strategies

It is well known that players cannot use weakly dominated strategies in a trembling hand perfect equilibrium. My question, however, is a little different: does iterated deletion of weakly dominated ...
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1answer
39 views

Opportunity Cost effect on benefits

My question is the following: Let's say a person has two career choices. He would be succesful in both, but in one of them he is slightly better and thus he will do better. So let's say career A will ...
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utility maximization with nested Cobb–Douglas–CES preferences

I'm trying to understand the following paper: Hsieh & Ossa: A global view of productivity growth in China (2016). The pdf can be found here: https://faculty.chicagobooth.edu/chang-tai.hsieh/...
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Moral hazard, bubbles, and economies of scale in limited companies and organizations

http://eprints.lse.ac.uk/100058/1/Goodhart_CEPR_DP13494.pdf What would be the disadvantage of limiting the liability to the product of the proportion of the company and the debt(a person with 2% of a ...
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Is a proft tax not distorting unless we know the opportunity cost?

A Profit tax where we actually know the Entire Cost Function Including the Opportunity cost(Time, Incommodation, best alternative for the easily monetized resources etc) is not distorting. But the ...
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The notation cl co (A)

I stumbled upon this notation, (cl co(A+C), while reading "Set Optimization—A Rather Short Introduction" by Andreas H. Hamel, Frank Heyde, Andreas Löhne, Birgit Rudloff and Carola Schrage. Is it ...
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293 views

Cobb-Douglas production function with expenditures rather than units

I want to estimate a standard Cobb-Douglas production function of the form $ Y=AK^{\alpha}L^{\beta}$. However, I only have data on labour expenditures, not units of labour. I don't have data on the ...
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1answer
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Quantity theory of money: microfoundations

The quantity theory of money states the price level is proportional to the amount of money in circulation. That is, if the quantity of money increases by some factor $k$, the price level will increase ...
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1answer
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What is the graphic intuition behind Marginal rate of subsitution

So I think I understand the math, but I don't understand the intuition on a 3d graph. Why does the ratio of partial derivatives give us a tangent line on a level curve(indifference curve)? My ...
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finding optimal values of quantities through utility function when MRS is 1 and price ratio is 1:2 [closed]

so this is a somewhat simple question but im stumped, here's why: given the utility U=2$X_1$+2$X_2$ where $P_1$$X_1$+$P_2$$X_2$=20 and $P_1$=0.5$P_2$ the question asks to find optimal values of $...
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If the government introduces import quota will prices change for imported goods

I am currently going through an introductory course to microeconomics. We are discussing how government interventions result in inefficiencies and dead-weight losses. One of the questions in concern ...
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Cobb Douglas, Budget Line, Demand function question

use the general form of the Cobb Douglas utility function $U(x,y)= (x^a)(y^b)$ and the budget constraint in the form $B=p_{x}X + p_{y}Y$ to find the demand functions for good x and good y. Is this ...
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Production technology of $y=2x$

I have a given product $y$ that is produced by the input $x$ in the following relation: $2x=y$. In our example, we are given the unit price of $x$ is $16$. Find the unit cost of $y$. The answer is $8$....
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Calculating equilibrium in a cobb-douglas long run, perfect competition scenario

Supposed there are a fixed number of 1000 identical firms in a PC industry, with each producing the same fraction with the same production function $$q_{i} = \sqrt{K \cdot L}$$ And market demand is ...
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1answer
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Representing preference orderings over a finite set of outcomes by two payoffs

I have read the following statement and I am having difficulty understanding the second part: Any set of preference orderings over a finite set of outcomes can be represented either by ...
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1answer
54 views

Mathematical framework for modelling the relationship between price and sales of a product

In my job as a data scientist, I am required to model the relationship between the price of a product and the sales or number of unit sold. I am trying to build a simplistic model, the assumptions of ...
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2answers
48 views

How to deal with misspecification of models in Macroeconomics?

I'm wondering what methods are used in economics, specially in macro, to deal with model misspecification. I've already searched the web, but I may be missing some methods. Therefore, I ask you for ...
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Direct revelation mechanism's sets of strategies and types

Mas-Colell, Whinston and Green in Microeconomic Theory describe the direct revelation mechanism as it follows: The employed notation is the following: $θ_i$: Player i's type $Θ_i$: Set of types for ...
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Are marginal utilities or utilities compared?

Consider decision making in an economic model. Suppose that there is some utility and it is a function of consumption and leisure where leisure is full-time work, part-time work, or full-time ...
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Market Clearing with Dividend and Investment

In pure exchange GE models, a typical goods market clearing condition for good $n$ looks like: $$\sum\limits_{i=1}^Ic_n^i=\sum\limits_{i=1}^Ie_n^i.$$ Consider a model with production where firms can ...
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Difference between social choice function and mechanism outcome function

Mas-Colell, Whinston and Green's Microeconomic Theory (3rd edition) defines the social choice function as the following: Later, the mechanism outcome function is also defined: The relationship ...