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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44 views

Unique competitive equilibrium in an exchange economy

I was working on the following excercise: In an exchange economy $\varepsilon$ with two goods and strictly monotone, continous and strict concave utility functions, suppose all demand functions are ...
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Question on the Definition of A Numeraire

I'm familiar with the idea of a numeraire when prices come in the form $\frac{p_x}{p_y}$, but I'm still trying to figure out what the more general notion of a numeraire is. For instance, if all that I'...
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Measuring and assigning utility numbers

I was recently introduced to the concept of cardinal utility. In real life, how do we assign these utility levels? For example if i wanted to assign numbers to my own utility indifference curve for ...
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Does treasury pay interest+ face value to the fed?

heard all the profit that the fed makes goes into treasury.. does that mean the treasury department can make unlimited money buy selling bonds to the fed? like if they issue bond to people, and the ...
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How to maximize utility using the Lagrange method [closed]

Is this solvable using the Lagrange method? If so, Does anyone know how to solve this using the Lagrange method? Utility is $a\ln x_1 + \ln x_2$. Budget constraint is $P_1x_1+P_2x_2= W$
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Is saying that the demand is elastic or inelastic too oversimplified?

As we know that elasticity varies from infinity to zero as we move along a linear demand curve, then is it correct to label any demand curve elastic or inelastic as a whole?
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Does transitivity qualify as a reason for Indifference curves intersecting each other?

Transitivity in preferences seems as a flawed concept because there might be a situation where A>B, B>C but A<C. Going by this analogy it seems that it does not qualify as a reason for ...
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25 views

Demand function for good x

$U(x,y) = x + 4y$, I tried to find demand function for good x, so I did utility maximization. max $U(x,y) = x + 4y $ subjects to $P_x.x + P_y . y = I$ and I found the $Px /Py = 1/4$, so $4Px = Py$. ...
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What's wrong with the “airline marginal cost pricing” argument?

This is a very common argument found in introductory classes and texts. Here's Mankiw's version: Thinking at the margin works for business decisions as well. Consider an airline deciding how much to ...
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what is monotonicity and strict monotonicity in preferences?

I am really confused between monotonic preferences and strictly monotonic preferences, I saw some video and read certain answer where it is mentioned that the When preferences are monotone / weak ...
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Determining subgame perfect Nash equilibriums

Question Three houses share exclusive access to a beach, but it is dirty due to trash washed ashore. A beach clean-up exercise costs $100$, but has a value of $200$ to each household. A clean-up ...
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How does fed cutting federal fund rate affect student loan

If fed cuts rate, it means it's cutting federal fund rate right? then why do loans like credit card and stuend loan? those aren't like Mortgage rate which the fed cuts its rate by buying MBS
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Elasticity of demand functions

I have some question about the elasticity of the demand functions of two different traders/consumers. Suppose that $x_1$ and $x_2$ are the elasticities of the demand functions of these agents. ...
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How was CES utility function derived?

Is there any book/papers that I can refer to the proof (derivation) of the CES utility function? Or if anyone could help me with the derivation, I will be so much grateful to you.
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1answer
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Tax revenue formula maximization- whats the name of this formula?

I have been teaching intermediate microeconomics and have come across a formula a number of times relating the tax rate at which revenue is maximized if elasticities are constant. This formula is ...
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Prove that the profits of the firm weakly decreases with input prices

Prove that the profits of the firm weakly decreases with input prices. More formally, suppose that the firm has a production function f, so that its profit function is π(p, w) = max(x≥0) $pf(x) − w · ...
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Best companion for Mas-Colell Microeconomic Theory textbook

What are the best sources to accompany MasColell Microeconomic Theory textbook in 1st year of MA in economics? I mean any sources - textbooks, videos, websites, book companions, etc. And I mean easy ...
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Can indifference curves slope up and to the right when both goods are inferior goods?

Just a general question related to Micro. I always thought they sloped down to the right. Thanks!
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unit iso-quant curve and unit iso-value line

This question is about international trade theory. For the labor L and capital K, I know the theory of iso-quant and iso-cost. The price will be determined where iso-cost line touches iso-quant curve. ...
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1answer
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mortgage rate in 2008 [closed]

if banks and finanfial entity paniced, which cause people to stop lending which leads to higher interest rate, how did the mortage rate stayed the same in 2008? it barely dropped. It's kind of ...
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What may the alpha mean in the context of indifference curves? How to solve such questions? [closed]

The question is as follows: A consumer has a budget of 3000 units. He uses it to buy 2 goods: bread and cheese. Cheese costs 30 units/kg, and bread costs 3units/kg. The indifference curve is ...
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1answer
108 views

What is the equilibrium price in this case?

From the Review Questions to Chapter 1: The Market in Hal Varian's Intermediate Microeconomics with Calculus, 9th ed.: Suppose that there are 25 people who had a reservation price of $\\\$500$, and ...
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How do you formulate a distance constraint and a budget constraint?

Everybody knows about budget constraints and how they are represented: but what if I want to represent a distance constrain from the shop you buy the goods? How can I build that?
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1answer
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How can I know whether a good is inferior or normal? I can't determine elasticity with this?

I just need to make sense out of elasticities and how to determine if a good is normal or inferior. I have determined by $X_1$ which is in the form $m/p_1 - p_1/p_2$, that I should just take the ...
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Does returns to scale always lead to economies of scale?

I can tell the difference between returns to scale and economies of scale, but then I still don't know if returns to scale ALWAYS leads to economies of scale? Please could you help me?
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When do prices not exist?

Often we employ the use of the separating hyperplane theorem to prove existence of price vectors, when discussing infinite economies this proof is substituted for proving existence of linear ...
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Diminishing MRTS Range, Follow Up Question

I have a directly related question to this thread (Diminishing MRTS range). The production function in the example is defined as $f(K,L) = 600K^2l^2-K^3L^3$ and it is easy to show that MRTS = $-MPL \...
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570 views

Derivative of definite integrals - how did MWG arrived at this result? Microeconomics

For a wage as a function of profit: $w(\pi)$ and profit $\pi \in [\pi_{min},\pi_{max}]$, the owner of a company sets the minimum wage to satisfy the following condition: obs $e = \{e_l, e_h\}$ but in ...
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Is whatever they calculated a valid “demand elasticity”?

https://medium.com/@kwrdarisipudi/demand-elasticity-of-iphones-1e3a7bbb9eac They are saying iPhone demand is less responsive to price over time, but I disagree. Income shifts the demand curve. Higher ...
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Neutral good and quasi linear

if my good y is neutral and x is essential. My indifference curves look like vertical, but I want to ask that How does my utility function look like and can I say that this is quasi linear because mrs ...
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2answers
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What does it mean if the controls in my IV model are correlated with my instrument?

I am seeking to understand what it means for my 2SLS IV model if my controls are correlated with my instrument (such that when I add additional controls to my model that are positively correlated with ...
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1answer
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Could price floors improve worker safety in the meat cutting industry?

Could price floors improve worker safety in the meat cutting industry? My question is inspired by the Future Perfect podcast https://www.vox.com/future-perfect/21502225/chicken-meatpacking-plant-...
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What happened to the Zimbabwe cash dollar after the introduction of Dollarization?

Let's say, before dollarization, I owned 1 million Zimbabwean dollars in cash and the next day dollarization went into effect. So in dollarization, the current Zimbabwean dollars will be invalid and ...
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Numbers of right and left gloves Question?

I assumed that numbers of right gloves at the horizontal axis and numbers of left gloves at the vertical axis. Therefore, two goods are essential and indifference curves are L-shaped. However, I want ...
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1answer
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HARA preferences details

I am searching for some exntensive details about HARA preferences. Where could I find some extensive details for HARA preferences? Something like a textbook or notes
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How is equilibrium reached in CAPM such that the tangency portfolio = market portfolio?

From my research online, when learning CAPM with $n$ risky assets and a risk free asset with return $r_f$, I always see the conclusion that in equilibrium, the market portfolio = tangency portfolio ...
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What is the point of considering only pure strategies in a game? How could you restrict people from thinking about mixed strategy?

In an experimental setting, how could you effectively incentivize the subjects to not to adopt mixed strategy? I would like to re-emphasize that the question in concern is "how to prevent people ...
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1answer
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Could lexicographic preferences on N^2 be represented by a utility function u: $N^2$ to $Z$?

I got this question on a homework: Could lexicographic preferences on $N^2$ be represented by a utility function u: $N^2$ to $Z$? I've heard countless times that lexicographic preferences can't be ...
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1answer
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What does increase or decrease in marginal utility mean in terms of quantity demanded?

According to the definition of marginal utility " it is the utility or satisfaction derived from the consumption of an additional unit of any commodity." So, the question is what does ...
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What is the observable definition of “preference” by Frisch?

To make things weird, although Frisch was fully aware of the importance of random distribution in economics relations, he never mention the randomness in binary preference relations! How to define ...
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Are prices part of total factor productivity?

I am trying to understand how production is related to income/profit and where do prices enter. Suppose there is a single firm with a Cobb-Douglas production technology: $$Y=AK^{\alpha}L^{\beta}$$ ...
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1answer
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Can Quasi-Linear functions be monotonic?

I want to ask that Can Quasi-Linear utility functions satisfy the more is better (monotonicity) assumption?
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What are the mathematical prerequisites to understand Whinston and Green's “Microeconomic Thoery”?

I've completed my under graduation in economics where I used micro books like Nicholson and Snyder's Microeconomic Theory and Hal Varian's Intermediate Microeconomics. I am comfortable with topics ...
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447 views

Is it true that if marginal cost is constant, then average variable cost is also constant and equals marginal cost?

I'm inclined to think yes because marginal cost only depends on variable cost (fixed costs don't matter), but I'm not 100% certain. Basically, my thought process is that marginal cost of producing one ...
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1answer
245 views

Can the Certainty Equivalent be negative?

I am questioning if the CE of a lottery can be negative? For me it doesn't make much sense by definition. I encountered this problem on the following exercise: Imagine a case where we have a lottery(...
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3answers
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If I shred a $20 bill, is society poorer? What is the effect on the real economy?

If the answer is yes, society is poorer, then the converse must hold true: that the government could make us all wealthier by simply printing money. However, a collapse in the money supply must have ...
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why does income of executives level out in the long term after tax increases?

Marginal Revolution University has the following question in its Elasticity unit: In 1993, then President Clinton passed a law raising income taxes. This tax hike was fully expected: He campaigned on ...
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Show mathematically that in a competitive market, a price-taking firm has a zero profit. Also, justify the assumption that there is only one firm

Consider a firm that has a production function given by $F(x)$, where $x \in \mathbb{R}^n_+$. Assume that the function $F$ is strictly increasing in each argument, concave, twice continuously ...
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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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Why do two-sided marketplaces often charge both sides of the transaction?

Why do marketplace apps often charge both sides of the transaction, when charging one side could raise as much (or more) revenue and be simpler? i.e. if the marketplace knows which side of the market ...

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