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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3answers
425 views

Why wouldn't competition prevent “usurious” payday loan rates?

The current Wiki page on "Payday Loans" claims loans are priced above marginal cost. The justification is that If a lender chooses to innovate and reduce cost to borrowers in order to secure a ...
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Should Costs of Travel to Buy Goods be Regarded as Transaction Costs?

Within the approach of New Institutional Economics associated with Oliver Williamson and others, emphasis is placed on transaction costs as a key factor in explaining why different forms of economic ...
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second order stochastic dominance without the same mean

Let $F$ and $G$ be two distributions with the same mean. $F$ is said to second order stochastically dominate (SOSD) $G$ if $$\int u(x)\mathrm dF(x)\ge \int u(x)\mathrm dG(x)\tag{1}$$ for all ...
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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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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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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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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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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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1answer
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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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1answer
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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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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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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. ...
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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
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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
59 views

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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555 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 ...
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342 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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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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186 views

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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658 views

Long Term Economic Profit for Perfectly Competitive market

When we consider a perfectly competitive market, in the short run we will run a firm if the total economic profit though negative till price is above shutdown point.In long run we will run at an ...
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2answers
639 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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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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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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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 given ...
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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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2answers
432 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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475 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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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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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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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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136 views

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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241 views

How to determine the price a monopolist will set when the demand curve the firm faces isn't known?

I'm reviewing the following question from my microeconomics course notes. I don't understand how to do part (b). A firm faces a perfectly elastic demand curve because the product it sells has a ...
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1answer
10k views

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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1answer
73 views

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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1answer
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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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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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259 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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Has any progress been made on the Pacman Conjecture on Finite Time Horizons?

The Pacman conjecture states that the optimal strategy for monopolistic durable goods manufacturers is to set price high and slowly drop it (i.e. eating their way down the demand curve). Empirically ...
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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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551 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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