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 find the substitution and income effects?

The usual definition of Substitution Effect (pg. 30; also found in Varian) tells that the Slutsky SE is $x(p_x', I') - x(p_x,I) = x(2,15) - x(1,10) = \frac{15}{2 \cdot 2} - \frac{20}{2 \cdot 1} = -6....
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Selling a durable good by monopolist under price commitment

My Industrial Orgnization book by Church and Ware presents the following problem: A durable goods monopolist can produce at zero marginal cost. If $r_t$ is the rental or lease charge consumers pay ...
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Cobb-Douglas Aggregator

I'm working with the Rising product quality developed by Grossman & Helpman, based on Aghion and Howitt's job. I have a simple question, that is not only about macro but also about micro. Consider ...
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Uncompensated and compensated demand functions

I came across this lecture note online and some of the points below confuse me. I have added the part that confuses me as an image and here is the lecture note for further reference, if needed. ...
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Please check those two production functions, they also seems to be quasiconvex?

Those two are generic production functions that we usually see, and I check the definition of quasiconvex and quasiconcave on wikipedia, and it seems those two graphs satisfy both definitions, and ...
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Find SPNE in the two stage game

Consider a firm in a two period world. The firm operates as a monopolist in the first period. In the second period, another firm will enter and the two firms will act as Cournot duopolists (i.e., in ...
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Finding the Pareto efficient allocations

Consider a 2 person 2 good economy where there is a private good $x$ and a public good $y$. Agent 1 has an endowment of 10 units of the private good and Agent 2 has an endowment of 20 units of the ...
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Using the 80:20 rule, what top 20% of economic concepts, theories, methods, tests, tools etc do you use to generate 80% of your results?

I'm curious to see what different economists use in their roles. Helpful if you could specify your area of work/interest too.
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im confused with the subsidy here and support price

The market demand and supply curve for an agricultural product are given by xd = 4500 - 250p Xs = 200p The government wishes to achieve a higher point on the supply curve than the initial equilibrium. ...
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1 answer
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Reason behind Pareto principle

Is Mathew effect or Pareto Principle are the laws of nature like Newton law of gravitation. What are the reason behind Pareto principle?
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Why does negative derivative of AC with respect to q imply Economies of scale (Monopoly)

In the following Industrial organization exercise form Church and Ware chapter 4 exercise 2 (preliminary info: C(q) = cost function; f = fixed costs; c = marginal costs; q= quantity of goods produced)...
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How is the role of prices is different in market economy than to the command economy?

In command economy, like market economy, weren't the prices signal the government to alter their production according to shortages and surpluses? I am not able to differentiate the role of prices in ...
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Is labour considered normal by someone whose utility function is $u = cl$?

If $l$ is hours of leisure and $c$ is the consumption units, can we show that leisure is a normal good for someone whose utility function is $u = lc$? If $w$ denotes wage per hour, $i$ denotes the non-...
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Why companies choose to make zero economic profits in the long-term when it can maximize it instead? Why does Apple have large profit margins?

I read that companies in the monopolistic competition make zero economic profit in the long term. Why would a company do that when it can maximize the profit instead? My reasoning is that the former ...
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strict monotonicity definition in Reny textbook and strong monotonicity

Reny-advanced microeconomic theory-page 10 wiki-monotonicity preference This capture is the definition of strict monotonicity in Reny's textbook, and I've compare it with wikipedia also other ...
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Determining price elasticities from prices & MC

Is it possible to calculate the ratio of the price elasticities of two goods if all you are given is the price of each good and a MC? For example, suppose: 1st good costs $P_Y$ ($P_Y > P_X$) 2nd ...
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Level-0 in Level-k model

According to the level-k theory: ...
3 votes
1 answer
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Hick's and Slutsky's approaches lead to different income effects. Why?

Suppose a cup of coffee and a plate of beans are sold at € 1 and € 3 respectively during the winter. In summer, the government decides to remove the subsidy on coffee and its new price per cup goes up ...
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I know that pareto optimal does not mean equitable, but is an equitable distribution also pareto optimal?

I am wondering if an equitable distribution is also pareto optimal in nature. I know the reverse is untrue, that a pareto optimal distribution is not necessarily a fair/equitable distribution. If you ...
3 votes
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Is there a theory of market supply that takes into account the individual firms' demand for credit?

I've recently finished my first microeconomics class, and I'm looking to further the subject a bit more. At the moment, we've only dealt with the formation of a market's supply as the addition of all ...
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Why is a contractor's profit considered a producer surplus instead of being complementary with marginal utility? [closed]

Do economists currently not view contractors as labor? I suggest producer surplus be exclusively exclusive material (for otherwise even mining and logging would not need withstand fixed-startup costs ...
1 vote
1 answer
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Formal proof that IR_L IC_H are binding constraints

Two types of customers, equal proportions: $q_H(p_H)=20-0.5p_H$, $q_L(p_L)=20-p_L$ The firm cant differentiate between them. It wishes to create a menu of two possible taarifs, $(p_H,T_H),(p_L,T_L)$ $...
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the future effects of Covid 19 pandemics on GINI (income inequality)

I would like to analyze the future effect of Covid 19 pandemics on the Gini index (income inequality). Which dependent variables should I use in order to see the effect of the pandemics? For example, ...
1 vote
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Lump sum income grant is better than a subsidy grant

There is an exercise in a Microeconomics book that says an income grant to a person provides more utility than does a subsidy on one good that costs the same amount to the government. Something like ...
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Influence on the consumption of $Y$ when the price of $X$ falls

Consider the utility function $u(x,y)$ and two budget constraints $B_1: px + qy = 1$ and $B_2 : p_1x + qy = 1$ where $p_1 < p$. If $(x^*, y^*)$ and $(x_1^*, y_1^*)$ maximize $u$ subject to $B_1$ ...
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2 votes
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Calculate Income Effect and Substitution Effect

In the lecture my professor shows a utility function $u(c,n)=\ln c - an$, where $c$ is consumption and $n$ is working hour, and says that for this kind of preference the income effect and the ...
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2 votes
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Hotelling's Lemma and existence of solution to profit maximization

I was reading Kreps micro book and he describes Hotelling's Lemma as follows: Directly after this, he states the following result: I have a few questions about this: Corollary 9.21 claims that ...
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Extensive form game with multiple players

I am wondering on how to draw the extensive form with multiple players. Below is an example of the trust game. How would that look if there were two receivers with potentially different payoffs? Note ...
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3 votes
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Indifference curve - corner point - Q about notation

I wonder if someone can help me interpret the vertical bar notation used in the picture. From the graph, it is apparent that the consumer will consume only good $x_1$, since the indifference curve is ...
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How can you simulate price/exchange for an economy according to supply and demand on a computer? Have there been any research papers or code doing so?

Essentially, I am asking if there have been any attempts at actually simulating how economic agents act in an economic environment and how prices are determined. To get a better feeling of what I mean,...
1 vote
2 answers
121 views

Why in the input requirement set the x is written with a minus sign?

My question comes from the textbook "Microeconomic analysis" by Varian, 1992. The textbook defines the set of all technologically feasible production plans as $Y\in \mathbb{R}^n$. It is said ...
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If the income increases by $\$d$, will it mean the utility at the optimal point increases by $\lambda d$?

I read that if the income increases by $\\\$d$, then the utility at the optimal point will increase by $\lambda d$. How do I get a sense of this, both mathematically and intuitively? Can we write that ...
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Does culture effect micro economics?

In different parts of the world, we have different attitudes to money , spending and value different things importantly. Does this mean that we require different micro Economic theories which are ...
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Comparing incomes across regions within a country

When looking at spatial disparities across regions within a country the standard approach that I have seen is to look at differences in incomes across regions. However, this doesn’t control for the ...
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Experimenting with Mean Variance Analysis

here with a question about mean-variance analysis and utility theory hope you can help me. First point My main objetive is to maximize the expected utility from portfolios given by $\sigma_p^2=\frac{C}...
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Does Varian define the MRS differently/ as negative?

Varian defines the MRS as the slope of the indifference curve. However, Snyder/Nicholson (and apparently Wikipedia) define the MRS as the negative of the slope. Does Varian use a different definition, ...
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Income and substitution effects

I’m currently reading the core economics textbook, and I’m confused by the description of income and substitution effects. The income effect is defined as the effect on the point where marginal rate ...
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2 votes
1 answer
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Proof of the tangency condition in UMP

When an indifference curve is tangent to the budget line such that the preferences are convex and monotone, why is the point of tangency an optimal for an UMP? Given the budget line $p_1 x + p_2 y = I$...
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When are labour unions good and when are they bad?

Recently in the UK, transport workers have gone on strike, causing severe disruption as only 1 in 5 rail services are now running. They can only do this as a result of unionisation and laws protecting ...
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Proving Pareto-efficiency with MRS

Given three people with the same utility function: $$ u_A(x_1,x_2)=u_B(x_1,x_2)=u_C(x_1,x_2)=\sqrt{x_1x_2} $$ Prove that the following allocation is Pareto efficient: $$ x_A=(2,2),\: x_B=(3,3),\: x_C=(...
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Right-to-manage wage bargaining (simple algebraic steps)

I am following (and trying to understand) a paper where the wage of unskilled workers is determined as the outcome of wage bargaining between a single union and a single firm in a right-to-manage ...
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Is it possible to have mean-variance preferences with different states of nature? Mean-Variance and Expected utility together?

I have to maximize mean-variance preferences like this (where Pi is a profit function): \begin{align} \label{eq:9} \max\limits_{Q_{F}^{\{x\}}}Z_{w}= E[\pi{\{x\}}]-\frac{A}{2}Var[\pi{\{x\}}] \nonumber\\...
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Convexity of preferences (dissimilar definitions)

Varian's Intermediate Microeconomics describes convexity as $$\text{Given } x, y \in X: x \sim y \implies \forall t \in [0,1], tx + (1-t)y \succeq x,y$$ The other definition I read everywhere is: $$\...
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A paper about the economics of (physical) power?

A couple of years ago I came across a economics paper that derived a microeconomic model in which if you include (physical) power and competition it led to some particular equilibriums. I do not ...
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Representation theorem for $\succsim\supset>\cup\sim$

On $\mathbb R^2$, define $x=(x_1,x_2)>(y_1,y_2)=y$ if $x_i\geq y_i$ for all $i$ and $x_j>y_j$ for some $j$. Let $\sim $ be an equivalence relation that $x\sim y$ implies $x\not> y$. Define ...
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Do collusive agreements always lower output?

I read that collusion between firms in a oligopoly setting make sure that consumers experience higher prices and lower output because the firms start to function as if they are in a monopoly. Is this ...
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Proof that weak Monotonicity and local non satiation imply monotonic preference

Weak monotonicity in my case is defined as follows: If x is weakly larger than y, then x must be weakly preferred over y. Monotonicity is defined as follows: If x is strictly larger than y, then x ...
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How does immigration drive marginal productivity in the specific model?

I'm learning about the specific factor model and as part of that, I'm studying the impact of immigration on wages and labour. I was doing an exercise online, with two goods cloth and food, cloth being ...
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Macroeconomics and microeconomics

Can we say macroeconomics is top down approach and microeconomics is bottom up approach .Is there any relation/connection between macroeconomics and microeconomics.
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Fundamental knowledge about invest, stock and economics for self learning [closed]

I am not expertised in the field of economics and stock so I do not know anything about invest. Would anyone please recommend any book/textbook for the initial leaner to get understanding of all these ...
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