14 votes

In microeconomics : is this the contradiction in the atomicity of firms ?

A price-taking firm takes prices as given, but that does not mean that the firm cannot influence prices; it just means that the firm ignores its own impact on prices. Now the question is how sensible ...
Michael Greinecker's user avatar
7 votes

Aggregation of the closure property of a production set

Doing this more abstractly, let $Y_j\subseteq\mathbb{R}^n$ be a production set for $j=1,\ldots,J$ and let $$Y=Y_1+Y_2+\cdots+Y_J=\{y_1+y_2+\cdots+y_J|y_j\in Y_j, j=1,\ldots,J\}$$ be the aggregate ...
Michael Greinecker's user avatar
7 votes
Accepted

In microeconomics : is this the contradiction in the atomicity of firms ?

This does sound a lot like the “contradiction” that Keen tries to derive. The key to resolving it is to remember that firms are small relative to the market, so $$\frac{\mathrm dQ}{\mathrm dq_i} = 0.$$...
Theoretical Economist's user avatar
6 votes
Accepted

Aggregate production function and returns to scale

I am assuming that you are interested in finding the aggregate production function when you have two plants and they use same inputs. So if you have $k$ units of capital and $l$ units of labor in ...
Amit's user avatar
  • 8,411
5 votes
Accepted

GDP with Intermediate Production

You’re looking for gross output; GDP is final output. Per the BEA: Economy-wide, real gross output—principally a measure of an industry's sales or receipts, which includes sales to final users in ...
dismalscience's user avatar
4 votes

Aggregation of the closure property of a production set

For a fully overview on the conditions for the sum of closed sets to be closed, see this note of Kim Border Recession cones I'll be working with subsets of $\mathbb{R}^n$. Let's start with some ...
tdm's user avatar
  • 11.4k
4 votes
Accepted

preference convexity and existence of equilbria

Consider an economy with two commodities. Production is trivial, $Y=\{0\}$, there is a single consumer with endowment $(1,1)$ whose preferences are represented by the utility function given by $u(x_1,...
Michael Greinecker's user avatar
4 votes

How to solve this aggregate production problem?

Observing the highest possible iso-profit curve passing through the feasible set, we obtain the supply of $y_2$ and demand for $y_1$ as follows. Here iso-profit curve is set of $(y_1,y_2)$ pairs that ...
Amit's user avatar
  • 8,411
4 votes

How to solve this aggregate production problem?

Let's first look at the profit of a single firm with parameter $a$. Let us denote by $x = -y_1$ the input and $f(x) = y_2$ the output. The production function is the following: $$ f(x) = \begin{cases} ...
tdm's user avatar
  • 11.4k
4 votes

CES v. Leontief Aggregator in Production

This is an old thread that I came across while searching on CES aggregators. My understanding of CES aggregators is that they are mainly used to aggregate outputs. I don't know whether they have been ...
Tom Barson's user avatar
3 votes

Why did the Cambridge Capital Controversy have no impact on economic modelling?

Actually the Cambridge controversy sort of affected macroeconomic modeling. As explained in the article that is also linked in one of the comments, the aggregate production function, real business ...
1muflon1's user avatar
  • 55.6k
3 votes

What is the difference between aggregate supply and GDP?

Aggregate supply is a relationship of price level and output. It is a function, or a curve, or a table. It is not a single value. If we know a particular price level, then we can determine the level ...
Mathew Knudson's user avatar
2 votes

Is there an economic theory that explains what happens when a market is saturated with a precious resource?

At the outset, discovery does not equate availability. Huge amounts of platinum (or the material at issue) might be discovered, but that does not necessarily mean that its extraction is feasible or ...
Iñaki Viggers's user avatar
2 votes
Accepted

Effects of increased income over short and long run in AD-AS equilibrium model

Because higher wages do not necessarily mean that national income increased. From macroeconomic perspective national income is output. Higher wages in these simple models do not necessarily translate ...
1muflon1's user avatar
  • 55.6k
2 votes

How would increase labor productivity lead to improved living standards of people in an economy?

In economics we measure living standards by the amounts of goods and services people can consume. Increasing labor productivity allows us to produce more goods and services and thus also consume more ...
1muflon1's user avatar
  • 55.6k
2 votes
Accepted

CES v. Leontief Aggregator in Production

I guess it depends on the application in question. Leontief function presumes that there is no substitution between the arguments, i.e. no amount of increase in one argument can compensate the ...
Herr K.'s user avatar
  • 15.4k
2 votes

What is the elasticity of Substitution of the function X = (K+alpha)(L+beta)

Touch wood that I did not make any mistakes. Consider the production function $X = (K + \alpha)(L + \beta)$. The elasticity of substitution is given by: $$ \frac{\partial \ln(K/L)}{\partial\ln(MP_L/...
tdm's user avatar
  • 11.4k
1 vote
Accepted

Why doesn't demand affect output in the long run?

How could price flexibility in the long run render the will to buy irrelevant to the quantity bought? Demand is not just will to buy some quantity. Demand is relationship between quantity (in case of ...
1muflon1's user avatar
  • 55.6k
1 vote

Derive and Decompose The Aggregate Elasticity of Substitution in CES Economy

I'm the one who asked the original question in another thread, but unfortunately, my narration is very unclear and hence the original one has been closed but I'm glad that there is a new question ...
Brandon Li's user avatar
1 vote

Why doesn't AD curve self-correct to higher price level in LR?

It does, in the long-run. It's partly a question of response time, and as you outline, AD has intervening steps that AS does not (wages in most markets are sticky and take time to adjust, while ...
heh's user avatar
  • 1,808
1 vote

How is employment related to aggregate demand and aggregate supply?

In an economic model, we normally have a production function that increases with the amount of labour. Since inherited capital is fixed, in the short run,the only way to increase out (supply) is via ...
Brian Romanchuk's user avatar
1 vote

Why doesn't Aggregate Demand mean National Income whereas Aggregate supply is equal to national income?

The existence of aggregate demand does not mean that aggregate demand is fulfilled. For instance if the aggregate planned demand is 100 billion dollars and due to crisis or war output is very low at ...
DrStrangeLove's user avatar
1 vote

Can Autonomous Consumption be Greater than Income of individual?

Expressing consumption as $$C = a + f(Y)$$ where $Y$ is income, there is nothing in the theory that forbids $$a > f(Y)$$ even though the theoretical anticipation and the empirical regularity (...
Alecos Papadopoulos's user avatar
1 vote

Why don't we draw National Income Curve(45 deg. line) simultaneously with graph for Saving Function?

The role of 45 degree line while showing a consumption function is that the 45 degree line translates the values on x-axis to equal values on y-axis. The consumption function is drawn on an income and ...
DrStrangeLove's user avatar
1 vote

Short run Aggregate supply curve is horizontal or positively sloped?

Explaining the shape of the horizontal range In the very short run, the AS curve is perfectly price-elastic (i.e. on the diagram, it is a horizontal line). It is also referred to as the Keynesian ...
Tan Yong Boon's user avatar
1 vote

Macroeconomics: effect of technology/workforce in the short run

For question 1, I think that investment has a demand-side effect on the economy. I think it isn't a supply-side effect because it isn't stated that the investors are responding to a supply-side shock. ...
ahorn's user avatar
  • 1,220
1 vote

Macroeconomics: Aggregate Demand, Equilibrium Dynamics and Expenditure Multipliers

In shifting the$\ AD_1 \rightarrow AD$ curves to achieve long run equilibrium, Real GDP will have to increase by 200 billion. Refer to the diagram below, (in purple). $\ MPC = 0.75 \rightarrow MPS = ...
Joshua Chin's user avatar
1 vote
Accepted

Complementarity in CES Production Function

Total investment in terms of how much capital is augmented, is always $I = I_{b} + I_{h}$. $(I_{b}^K + I_{h}^K)^{\frac{1}{K}}$ is equal to the amount of the intermediate good $Y$ that we need to ...
Alecos Papadopoulos's user avatar
1 vote

Will SRAS curve definitely shift if LRAS curve shifts?

Short answer: Yes, the SRAS curve will shift after the LRAS shifts to return the short-run equilibrium (SRAS/AD) back in line with the long-run equilibrium (LRAS/AD). The reason the SRAS curve doesn't ...
economicist's user avatar
1 vote

Will SRAS curve definitely shift if LRAS curve shifts?

The SRAS also shifts. SRAS is normally used in models where the supply side does not adjust immediately to the new conditions in the market, i.e. models with nominal rigidities. Examples are: sticky ...
soltzu's user avatar
  • 85

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