All Questions
1,113
questions
2
votes
3
answers
340
views
What do interest rates tell us about the state of an economy?
I seem to have a misconception about what interest rates mean. On one hand, they signal how high a government's demand for money is, because if a government is ever in any serious need of money, they ...
- 103
2
votes
0
answers
103
views
WACC: forward looking vs. backward looking
I have learned from the thread "Cost of debt, taxes and WACC" that WACC is forward looking in that it disregards the interest rate on debt already taken by the firm but rather use debt's ...
- 2,365
1
vote
2
answers
1k
views
Why is price plotted as a dependent variable?
Watch the video from 5:35:
law of demand
In the description, the narrator says that "demand depends on price".
However, in the plot, he is keeping price "P" as the dependent ...
- 145
1
vote
1
answer
1k
views
If a utility function is quasi-concave, can we say that the IC curve associated with it is convex?
Let's say we have an utility function, $ U(x,y) = \sqrt{x \cdot y} $. The indifference curve associated with this is convex, while the function itself is quasi concave (because it satisfies $ f_{xx} ...
- 790
1
vote
1
answer
63
views
minimisation problem as a maximisation problem for lagrangians?
if I have a problem min(-f) s.t. g<0, I can rewrite it as -max(f) s.t. g<0.
In this case, if I take Lagrangians, would my lagrangian be
L=f- lambda(g-0)
or would I have to have a negative in ...
- 21
1
vote
1
answer
101
views
Is it possible to pay the internal debt of the country and to cover the budget deficit by increasing taxes?
Say for example the US govt. is putting an extra tax of 10% on the incomes of the people earning more than the average income. To make it easier, only tax the people earning more than 110% of the ...
- 982
1
vote
0
answers
69
views
Example of the change of measure proposed in Hansen (2012)
In this question, I'm continuing to explore the tools used/presented in Lars Hansen's Econometrica paper "Dynamic Valuation Decomposition within Stochastic Economies" (2012).
I'm trying to compute an ...
- 9,355
1
vote
1
answer
951
views
Why is machine built this year but not sold this year included in GDP?
GDP is the sum of market value of all final goods in the current year, so why is is machine built this year but not sold this year included? In addition why is machine not built this year but sold ...
- 145
1
vote
2
answers
3k
views
Supply curve for a competitive firm with constant MC
I know that for a perfectly competitive firm, the supply curve is given by $p=MC \ge AVC$, where $AVC$ is the average variable cost.
Now I get really confused when the $MC$ comes out to be a constant....
- 224
1
vote
1
answer
76
views
Maximized tax revenue & foreign labor
I'm dealing with a tricky assignment, and I have no idea of where to begin.
Person 1 lives in Denmark and has a utility function given by,
$$(1) \ \ u(c,l)=c-\frac{\eta}{\eta+1}(24-l)^{\frac{\eta+1}{\...
- 25
1
vote
1
answer
46
views
How does artificial scarcity benefit the seller?
It is said that a diamond selling company (you know the one ;) ) deliberately buys up stocks of diamonds and refuses to sell them in order to generate an "artificial scarcity", so as to ...
- 169
1
vote
3
answers
544
views
The law of supply and demand - How does it work?
I've learned what the principle of supply and demand says, and would paraphrase it like this:
The price of a good is at equilibrium when supply and demand are
equal.
Or with other words:
The price ...
1
vote
2
answers
4k
views
convexity of the profit function for profit maximization
the profit function is convex in prices and wages (output and input prices respectively). How does this interact with profit maximization since convexity implies tangents always lie below the curve I ...
- 326
1
vote
1
answer
581
views
Why excluding intercept is dangerous if there is no literature back up in DID setting?
Recently, I run the regression for the generalised DID following this paper:
$Y_{it}$ = $\alpha$ + $\beta$ $(Leniency Law)_{kt}$ + $\delta$$X_{ikt}$ + $\theta$$_t$ + $\gamma$$_i$ +$\epsilon$$_{it}$ (1)...
- 1,130
1
vote
1
answer
29
views
Theory behind financial flows not going to the most developing nations even though they have the highest growth rates
I remember reading a bunch of articles on this a few years ago, but I can't find any of the references any more.
It has been a while since I looked at this, so here is a rough paraphrase of the ...
- 385
1
vote
1
answer
16k
views
Income and substitution effect for perfect substitutes
I was recently asked about what the income and substitution effects are for perfect substitutes are. Given the rather peicewise nature of the demands for each good in a utility function considering ...
- 8,345
1
vote
4
answers
18k
views
Will price increase as demand increase?
I know the law of demand which states that
if price of a product increases then the demand will decrease
In this, I think we assume that price is a function of demand. But I feel otherwise i.e.
...
- 113
1
vote
0
answers
66
views
Optimal price when elasticity of demand is positive? [closed]
I’m performing some exercises in order to get the optimal price of some product such a potato chips, biscuits, drinks, etc. But I’ve found that some of them have positive elasticities. This can makes ...
- 111
1
vote
1
answer
80
views
Could the Feds objectives be adjusted to decrease or at least not increase wealth inequality?
The US congress "has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates."(1)
It seems ...
- 219
1
vote
1
answer
153
views
Was the financial crash of 2008 caused by top graduates of the American Ivy Leagues working at wall street banks?
From this article by Lisandro 'Leloy' Claudio, a Philippine/a Filipino professor of history, politics, South & Southeast Asian Studies (and not necessarily of finance, economics, mathematics or ...
- 370
1
vote
0
answers
140
views
Revenue maximization problem
There are $N>0$ Households in an economy.
The government has aim to maximize a weighted average of income by imposing tax on the rich people and redistribute the tax revenue to the labor ones.
...
- 120
1
vote
1
answer
5k
views
What is the difference between average cost and marginal cost?
$$AC(q) = \frac {C(q)}{q}$$
$$MC(q) = \frac{\partial C(q)}{\partial q}$$
These are the definitions. But I don't understand what the difference is.
Is the average cost the cost per unit while the ...
- 3,454
1
vote
2
answers
152
views
If the government builds a bridge, how do we know it's the best possible usage of real resources (i.e. steel, labor, etc) at the time?
I would assume the "goal" of any economic activity is to make the largest amount of people the "happiest" -- i.e. Pareto Efficiency or sum-total 'utility.'
How do we know if this ...
- 328
1
vote
2
answers
496
views
Primary dealers in treasury auctions
When the treasury or equivalent institution of a country auctions of government bonds there is frequently (i.e. in most countries) some sort of restriction on who can participate. The term primary ...
- 29.5k
0
votes
1
answer
367
views
Identifying utility function
I recently came across a utility function with min written at the start. I assumed that it was a case of a leontief utility function, and only after going ahead with the problem I found out that it is ...
- 15
0
votes
1
answer
103
views
Good inflation models
A well-received comment on this site stated:
Pundits might not understand inflation but macroeconomists actually understand inflation well nowadays
What models are currently used to forecast ...
- 29.5k
0
votes
1
answer
290
views
How to overcome the problem of duplicates in Panel data in R
I tried to convert my data to panel data but i kept experiencing an error message. The data is in the form of likert scale. The error message was
duplicate couples (id-time) in resulting pdata.frame ...
- 1
0
votes
0
answers
68
views
Heckscher-Ohlin with heterogeneous preferences
could someone really help me out I would need to show a situation in which the Heckscher-Ohlin result does not necessarily hold when preferences are heterogeneous.
Does someone have an idea how I ...
- 13
0
votes
1
answer
78
views
Cost of debt, taxes and WACC
I am studying the cost of debt. Without loss of generality, suppose the debt consists of bonds. On the one hand, some textbooks (e.g. Hillier et al. "Fundamentals of Corporate Finance: 4th ...
- 2,365
0
votes
1
answer
57
views
Why don't Governments do away with the optics of taking on debt against new currency, and instead issue a limited currency every year (say 5% of GDP)?
Governments engage in the optical illusion of taking on debt against issued currency.
The debt is effectively owed by the Government to itself.
The value of the debt is completely controlled and ...
- 187
0
votes
1
answer
124
views
Mathematical definition of perfect substitutes
If $X$ and $Y$ are perfect substitutes such that a unit of $X$ can be replaced by $n$ units of $Y$, how do we get the mathematical equation from it? I know the equation is of the form $ax+by$ (and $U =...
- 244
0
votes
1
answer
117
views
How do I get to this demand function in the monocentric city model?
I need to get this resulting price and quantity (housing):
It's pretty clear that the denominator of the quantity function is just the price function.
From this utility function:
And this constraint:...
- 217
0
votes
1
answer
483
views
Equilibrium Price - OLS Regression
I have asked another question related to price elasticity, which pretty much left me with this problem:
I want to analyze the factors influencing the price of a product. The underlying assumption is ...
- 221
0
votes
2
answers
317
views
Why "positive theory" is important in discussions of how antitrust law achieve "normative goal"?
In this description regarding positive theory and normative theory, from what I understand, positive theory is based on fact and cannot be approved or disapproved (e.g., explain how the economy ...
- 1,130
0
votes
0
answers
103
views
Deriving the CAPM: going from utility of consumption to utility of asset returns
Some textbook presentations of the capital asset pricing model (CAPM) take returns on stocks as a primitive and proceed as if agents derive utility from asset returns. Assuming a concave utility ...
- 2,365
0
votes
1
answer
451
views
Question on oligopoly.
Consider an oligopoly between two identical firms producing a homogenous good with constant marginal cost where firms face linear market demand. $B_i(q_j)$ denotes firm i’s best response given the ...
- 120
0
votes
1
answer
198
views
Are the marginal conditions for Pareto optimality sufficient?
In introductory microeconomics textbooks, it is argued that the following three conditions are necessary for the Pareto optimality;
Exchange Efficiency (MRS must be equal among all individuals)
Input ...
- 63
0
votes
2
answers
12k
views
What are the difference between industry fixed effects and industry*year fixed effects?
In some papers, in column 4 Table 1, the author used firms fixed effects and industry*year fixed effect at the same time. I have two questions here:
What does industry * year fixed effect mean?
What ...
- 1,130
0
votes
2
answers
27k
views
Why did the Iranian Rial peak suddenly on 1 August 2014?
Search Iranian Rial and click on Max above the chart.
Iranian Rial to Pound Sterling:
Why did the Iranian Rial peak suddenly on August 1st 2014?
0
votes
1
answer
118
views
What are the hypothesis and results explaination of joint null test?
When trying to satisfying the paralell assumption in Difference-in-Differences setting, I have the equation:
$$
y_{kt} = \alpha_k + \lambda_t + + \delta_{-4} d_{k,t-4} + \delta_{-3} d_{k,t-3} + \...
- 1,130
0
votes
2
answers
1k
views
Consumer Theory (Finding demand functions)
Suppose that Sally’s preferences over baskets containing food (good $x$), and clothing (good $y$), are described by the utility function $u (x, y) = \sqrt{x} + y$. Sally’s corresponding marginal ...
- 1
0
votes
1
answer
72
views
Marginal utility meaning and properties
Consider goods $X$ and $Y$ such that the marginal utility of a unit of good $X$ is always that of $n$ units of good $Y$. $X$ and $Y$ are perfect substitutes.
Question 1: What does the above mean ...
- 244
0
votes
1
answer
87
views
Which of these two lotteries, a consumer with Von-Neumann Morgenstern preferences will choose under exponential distribution?
Consider two lotteries each having an exponential distribution. The function of
cumulative distribution of an exponential distribution is:
$$F(x;\lambda)=1-e^{-\lambda x} \forall x \in \mathbb R_{+}....
- 109
0
votes
1
answer
89
views
Seemingly contradictory relationship between bond yields and economic growth?
I have a few seemingly contradictory ways of viewing the relationship between economic growth and bond yields:
Reductions in FFR are largely induced by IOER. Since IOER and bonds are competing ...
- 101
-1
votes
1
answer
131
views
What process does a new bank go through to get its first central bank reserves?
Im trying to better understand how banks work and one of the first thing that confuses me is central bank reserves.
Current understanding of central bank reserves:
Central bank reserves never enter ...
- 174
-1
votes
1
answer
91
views
Would a very cheap renewable energy source be harmful economically?
This question is not on whether these devices work or not but so much as if they did work. What if electricity can be made so cheap that everyone could afford it ti the point there was no demand for ...
- 1
-3
votes
1
answer
124
views
Why economics does not believe in data/empirical evidence?
There are influential ‘theories’ that are in plain contrast to experimental evidence, including the capital asset pricing model, the efficient market hypothesis, or the Markowitz portfolio theory. ...
- 139
-4
votes
4
answers
166
views
How is inflation logically possible?
I am a total lay man on economics, but I find inflation to be an impossible phenomena. Here is my arguement for it,
We have that every year that more people are born (reduces labour price), and also ...
83
votes
20
answers
17k
views
What are some results in Economics that are both a consensus and far from common sense?
What are some results in Economics that are both a consensus between most economists and far from common sense?
I would also welcome suggestions of clear definitions for what we should mean as ...
74
votes
5
answers
18k
views
Why is the oil future price negative?
I don't understand why the price of oil futures went negative today.
News say it is because sellers cannot sell it. But, why don't they just hoard it until the coronavirus crisis is off?
Why don't ...
- 1,344