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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9
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1answer
79 views

Weakly monotone preferences with singleton indifference curves: do any of them admit a utility representation?

Inspired by this question. The original question was answered by Amit with some nice examples. I would like to know the generalized answer: Suppose we have a preference ordering $\succeq$, which is ...
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Mathematical Micro/Macro Economics Textbook Recommendation

I was formerly an economics major and now also majoring in mathematics. I want a textbook that is rigorously based on mathematics; not just using mathematics whenever the author wants, but in a more ...
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Alternatives to Pigouvian tax

Two common drawbacks of Pigouvian subsidy mentioned in the literature are related to monetisation and measurement of social cost (Baumol) and reciprocity of social cost (Coase). What alternatives to ...
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Continuity Axiom in Expected Utility Theory

Take the following definition of continuity. The preference relation $\succsim$ over the space of lotteries $\mathcal L$ is continuous if for any $L,L',L''\in\mathcal L$, the sets $$S_1=\{\...
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Translog Preferences

What are translog preferences? The wikipedia article only clears up that it stands for transcendental logarithmic preferences, and that they are a generalization of Cobb-Douglas preferences. Do they ...
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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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Are homothetic preferences monotonic?

I'm trying to understand intuitively what a homothetic preference is, and I am still not quite there. I understand the definition, that a homothetic preference implies that the slope of the ...
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2answers
150 views

Why don't public transport networks have more routes to each terminal in order to reduce the number of transfers?

When using public transport, we often need to transfer to a different route during of the journey. These transfers have costs – I can think of the following, but there may be more. If we're reading, ...
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468 views

Envelope Paradox

There are two envelopes. One contains $x$ money and the other contains $2x$ amount of money. The exact amount "$x$" is unknown to me, but I know the above. I pick one envelope and I open it. I see $y$ ...
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329 views

Muth exposition of the rational expectations hypothesis

I am reading in statistical decision theory and stumbled upon the rational expectations literature (rationality with incomplete information->dynamic problem->N.L Stokey->husband). The assumption that ...
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1answer
366 views

For what demand function is a monopoly most harmful?

Consider a firm with zero marginal cost. If it gives the product for free, then all the demand is satisfied and the social welfare increases by the maximum possible amount; call this increase $W$. ...
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Example of an economy where Equilibria may not be efficient, where one agent is altruistic

I'm looking for a theoretic example of an economy where one agent is altruistic, while the others are not, that would make a walrasian equilibrium not efficient.
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Could leisure be considered a Giffen good?

One of my microeconomics fellow students asked this and it got me thinking. The leisure demand curve is a mirror of the labour supply curve. In the section where the Income Effect is greater than the ...
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1answer
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Perfect Substitution with a Continuum of goods?

Imagine I have a continuum of different goods indexed by $\omega \in [0,1]$. I have a household which consumes a quantity $C(\omega)$ of good $\omega$, and pays a price $P(\omega)$. The household has ...
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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 ...
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311 views

Local and Central Wage Bargaining: What Is the Difference?

Consider the following setting: Profit maximizing firms with production functions $\Pi(w,L)$, where $w$ is the wage and $L$ is employment. Unions who want to maximize the expected utility of their ...
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Queuing Discipline and Lipschitz Continuity

I was reading a paper by Platz and Østerdal (2014) titled "The curse of the first-in-first-out queue discipline". I was wondering about a particular section of it, particularly the part about last-in-...
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1answer
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eBay economics - total revenue impact from expanding ecosystem by 1 seller

While I think my question is straight forward, I'm guessing the answer to it is anything but. Thanks in advance for any insight you may be able to offer, even if it's just a directional assist. Here'...
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4answers
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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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2answers
324 views

Lee and Saez (2012): Pareto-Improvement?

I'm interested in the following quote that came up in this earlier answer. Second, when labor supply responses are along the extensive margin only, which is the empirically relevant case, the co-...
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2answers
580 views

on economic growth and Second Welfare theorem

While I was studying eighth edition of Mankiw's Macroeconomics, in chapter 9 on Economic Growth(pg. 245), the author mentions : "Some economists have proposed increasing the incentive to save by ...
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Why do top professional sport players get usually paid so much?

I'd like to find an answer to this question as I can't see how something like this can be happening. I can see three reasons that they would earn that much but any of them if thought better is wrong. ...
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Why is Roy's Identity so important?

I've been reviewing some of my microeconomics theory and have been reading up on Roy's Identity. Recall that Roy's identity is defined as: $$x^*_{i}(\text{p},m)=-\frac{\frac{\partial v}{\partial p_{i}...
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635 views

Are there any instances where short run demand/supply is more elastic than long run cases?

Conventionally both demand and supply for goods and services are both more elastic in the long run than in the short run. My Question Is there ever an instance where demand and/or supply for a ...
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390 views

Destruction in Exchange Economies

I am reading about exchange economies and ran across something that is counter intuitive. How is it that in an exchange economy with no production that a person can make himself/herself better off by ...
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407 views

Optimal Random Bids

This question comes from this website that I peruse often. Two players go on a hot new game show called “Higher Number Wins.” The two go into separate booths, and each presses a button, and a ...
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450 views

Is elasticity purely an aggregate concept or can it be individualized

First question here. I am not an economist by training, but I do quite a bit of econometric analysis in my job (my background is maths). I often get asked about elasticity, and I am familiar with ...
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1answer
59 views

Meaning of $dF(z)$ in expected utility framework

Background: from a Microeconomics course, $F$ is a cdf. In other words, if $F$ has a density function $f$, then $$F(z)={\int_{-\infty}^z f(x) dx} $$ Write the Bernoulli utility function $u:...
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Convexity of the Market Demand Function

The market demand function can be either concave or convex. I am looking for conditions under which a general market demand function can be considered convex. For example would convex preferences or a ...
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3answers
2k views

Quasilinear Utility: Pareto Optimality Implies Total Utility Maximization?

I read that if we have quasilinear utility for all consumers, then any pareto optimal allocation maximizes the sum of utility levels of all consumers. That is: $\textbf{What we know:}$ $$1)\quad u^i(...
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Can a monopoly INCREASE the market surplus compared with a competitive market?

Monopolies are often blamed for DWLs(Dead Weight Losses), while competitive markets believed to work without DWLs (assuming zero taxes/subsidies and zero externalities). But I think I found an ...
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Why don't consumers subsidize monopolies?

Monopolies don't maximize welfare because they set prices above the equilibrium price, leading to dead-weight loss. It is possible for the government to provide a per unit subsidy to a monopoly until ...
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343 views

Why should the statistical value of life exist?

In areas such as insurance pricing and government policy analysis, it is often necessary to assign human life a monetary amount in order to compare it with other monetary amounts. So economists have ...
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Can't Derive Expectation in Second Price Auction

I'm working on a SPA where we solve: $\max_{\beta \ge 0} Pr\{Winning\}[v - \mathbb{E}(b^{[2]} \ | \ b^{[2]} \le \beta)]$ We assume all beliefs on bids are independently and identically distributed ...
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Understanding Envelope Theorem

Can someone please verify whether or not my knowledge is accurate. From what I understand, the intent of the envelope theorem is to make a shortcut from indirect utility to the expenditure function. ...
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3k views

Which utility function yields a constant price elasticity of demand function?

How do I know which utility function I can use to find an isoelastic demand function, e.g., $x(p)=Ap^a$? And similarly, which cost function can I use to find an isoelastic supply function? Does it ...
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1answer
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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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Overlaping jurisdictions Model: Proof of Lemma 1; The Size of Nations

I've been reading the book 'The Size of Nations' by Alberto Alesina and Enrico Spolaore (can be found on the net if you know where to look) and I'm having trouble following their "proof" of the first ...
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Benefits of a cartel among firms

Suppose I have $n>2$ firms selling differentiated products. These firms form a cartel for the price. The cartel has size $n_c$. Let $\pi_{i,m}$ be the payoff of a firm $i$ outside the cartel and $\...
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113 views

Empirical studies on network equilibria

There have been a number of papers in the literature (pioneered by Sanjeev Goyal, Jackson, Kranton, amongst others) emphasising the role and importance of network structure in economics, the ...
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1answer
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Selecting the best utility function for households

I have little to no background in micro, but I'm learning about utility functions. It seems that there are many forms of utility functions for households. In general terms, how does one go on to ...
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Relationship between strong and weak axioms of revealed preference

I keep seeing these following facts just asserted while reading: Let W = weak axiom of revealed preference Let S = strong axiom of revealed preference Let C = the commodity vector $W \iff S$ ...
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241 views

Throw-away paradox with independent goods

The throw-away paradox is a situation in which a trader can gain by throwing away some of his initial endowment. The specific example, brought by Aumann and Peleg in 1974, concerns an economy with ...
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Intuition behind Comparative Advantange

I already read and ask NOT about pp 52-54, Principles of Microeconomics, 7 Ed, 2014, by N Gregory Mankiw. I understand such numerical examples that corroborate Comparative Advantage, but how can I ...
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509 views

An agent's expected utility depends only on mean and variance

Consider an agent with the expected utility function $U(L) = \sum_{s=1}^{S}\pi_s U(Y_s)$ over the lottery $L = (Y_s, \pi_s)$ where $\pi_s$ is the probability of state $s$, $Y_s$ are state $s$ payoffs, ...
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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 ...
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Intuition - Why does elasticity vary along a curve?

Source: p 96, Principles of Microeconomics, 7 Ed, 2014, by N Gregory Mankiw Even though the slope of a linear demand curve is constant, the elasticity is not. This is true because the slope is ...
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4answers
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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 ...
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2answers
312 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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Economists studying the eldery and intergenerational transfers

Does anyone knows who are the leading economists in the field of elderly and intergenerational transfers? I'd like to know what are the current topics they are working on.

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