41
votes
Economics term for those who benefit even though they didn't contribute
I think the economic term is free-riders.
- 9,802
13
votes
Is the market price objective?
The market price is the current price at which something may be bought or sold. If a good is not sold or bought at a particular price, then that is not the market price. Whether or not any particular ...
- 718
12
votes
Accepted
Can someone explain graphically why MRS is invariant under monotonic transformation?
You're right that it's a bit counterintuitive that the shape of the indifference curves shouldn't change when you transform the utility function. The reason is that you are transforming along an axis ...
10
votes
Accepted
Explaining why Hicksian demand is more inelastic to intermediate micro student
Here's a "no maths" explanation (including the inferior goods case, because I think it helps to understand what's going on):
Suppose we have a normal good, $x$, and we increase its price. Marshallian ...
- 16.9k
9
votes
Accepted
What is the difference between Impression Management and Signaling Theory?
I don't believe those two terms are used in the same spheres.
To me, an economic theorist, signaling plays a role in models with asymmetric information when the informed party moves first and the ...
- 5,260
9
votes
Is the market price objective?
The vast majority of economists subscribe today to the subjective theory of value that was in economics introduced by Jevons, Walras, and Menger. Subjective theory of value posits that value is ...
- 53k
8
votes
Accepted
Are monotonic and continuous preferences necessarily rational?
Consider a preference relation in $\mathbb{R}^2$ such that $x=(x_1,x_2)\succsim (y_1,y_2)=y$ $\iff$ $x_1\geq y_1$ and $x_2\geq y_2$.
1) You might like to argue whether this preference relation is ...
- 967
8
votes
Piracy/File sharing - Why aren't songs, movies or ebooks given for free (+ads) like TV?
What I don't see here is an economic model, however rudimentary, that will allow us not to definitely answer the question but to clarify what are the critical issues. So here's one (totally ...
- 33.2k
8
votes
Accepted
(Preference Relation/Set) Continuous $\succsim$ imply closedness of upper and lower contour sets
Looking more closely at your question, I think things should not be overly complicated. From Mas-Colell et.al.
Definition 3.C.1:
The preference relation $\succsim$ on X is continuous if it is ...
- 6,556
8
votes
Meaning of Additively Separable, Linear in X
A utility function is additively separable if it can be written as:
$U(x,y) = u(x) + v(y)$
Examples:
*$U(x,y) =ax + by$ is additively separable by inspection.
*$U(x,y) = ax + bx2 + cy$ is also.
*$...
- 2,911
8
votes
Accepted
Meaning of Additively Separable, Linear in X
A function is additively separable in its arguments if it has the form
$$f(x,y) = g(x) + h(y)$$
This means that the cross partials are zero, and so there is no "cross" effect of the one argument ...
- 33.2k
8
votes
Accepted
Why do we need Complementary Slackness Condition for Karush-Kuhn-Tucker Conditions
Solving a non-linear programming (with inequality constraints) is about trial and error. You don't know a priori if a constraint is active. You consider all the possible cases satisfying your ...
- 675
7
votes
Accepted
Strict preference relations and utility representations
Yes it is:
If direction
$$
x \succ y \Rightarrow x \not \precsim y \Rightarrow u(x) > u(y).
$$
Only if direction:
For all $x, y \in X$,
$$
x \succsim y \iff u(x) \geq u(y)
$$
implies
$$
x \sim ...
- 28.4k
7
votes
Why do so many models assume homothetic preferences?
Here a short answer: Homothetic, identical preferences have the modelling advantage that the distribution of income across individuals does not matter for aggregate demand. That is, if you want to ...
- 1,852
7
votes
Why do so many models assume homothetic preferences?
Let me answer the question by following @HRSE's explanation and recommending a good reading. Eaton and Kortum (Ecta, 2002) use homothetic preferences, a convenient assumption to get a tractable ...
- 6,885
7
votes
Accepted
How do I represent this indifference curve graphically?
The problem is that there are no indifference "curves" but indifference "areas". Consider the following graph:
For a reference bundle $A$ (equivalent to $\{2,3\}$), the gray regions indicate the ...
- 8,552
7
votes
Differences between Slope of budget line and MRS?
Not really, you're right in that (loosely speaking) the MRS is the amount of one good someone is willing to give up in order to get an additional unit of another good. However, the slope of the budget ...
- 711
7
votes
Why doesn't Nintendo fire up the old factories and re-produce *exact* copies of many of their most popular games, controllers and consoles?
I am unsure whether this qualifies as economics, but it would be something that might be discussed in business school. Furthermore, the answer is almost entirely engineering. As such, I will do this ...
- 9,834
7
votes
Does Modern Monetary Theory (MMT) provide a useful insight into how to manage the economy?
Does Modern Monetary Theory (MMT) provide a useful insight into how to manage the economy?
That depends on your definition of MMT, because it is not generally agreed on what it even is. You will find ...
- 53k
7
votes
Convex Preference and utility function
Let $X$ be the convex set of alternatives, let $\succeq$ be a preference relation and let $u(.)$ be a utility function that reflects these preferences, which means that $u(x) \ge u(y)$ if and only if $...
- 9,802
6
votes
How to derive utility possibility frontier?
Given that $u_A(x_A, y_A) = \sqrt{x_Ay_A}$, $u_B(x_B, y_B) = \sqrt{x_By_B}$ are the utility functions of A and B, and total endowment of X and Y in this pure exchange economy is $\omega_X$ and $\...
- 7,583
6
votes
Accepted
Prove the budget correspondence is upper hemi-continuous
I am assuming that the following facts do not require proofs for the purposes of this question.
Fact 1: Let $h_n$ be a sequence in $\mathbb{R}^K$ such that $\lim_{n\rightarrow \infty} h_n =h\in \...
- 967
6
votes
Accepted
If the Engel Curve of a Cobb-Douglas utility function is positive and linear, than does that mean it is neither a necessity nor a luxury good?
Recall the following equivalent definitions for luxury goods and necessities:
A good $x$ is considered a necessity if $e_{(x,I)}<1$.
A good $x$ is considered a luxury good if $e_{(x,I)}>1$.
As ...
- 231
6
votes
Thin indifference curves
To begin with, I think the question is wrongly stated. For if the defininition of a thin indifference curve is such that continuity of a consumer's preferences implies thin indifference curves, then, ...
- 973
6
votes
Accepted
Thin indifference curves
I don't think continuity alone is enough to guarantee thin indifference curves.
Consider preferences such that, for any $x$ and $y$ in the choice set, the consumer is indifferent between $x$ and $y$. ...
- 16.9k
6
votes
Accepted
Calculus and Indifference Curves in an Urban Economics Example
The utility function under consideration is $v(c,q)$ and then
$$MRS(c,q) = \frac{\partial v/\partial q}{\partial v/\partial c} = v_2/v_1$$
make the functional denpendency of on $u$ explicit then you ...
- 3,276
6
votes
Accepted
what is consumer surplus practically?
It is better to think of it as a "saving" rather than as a"surplus".
Also, it is better understood if we imagine heterogeneous consumers for whom a threshold price exists, a "maximum willingness to ...
- 33.2k
6
votes
Accepted
modelling disutility from over consumption
Varian's Intermediate Microeconomics covers a concept called the bliss point.
If the consumed amount of a certain good is under the quantity specified by the bliss point, then the consumer would ...
- 28.4k
6
votes
Accepted
Whats the difference between local non-satiation and monotonicity?
Monotonicity of preferences is a stronger condition than local nonsatiation. Monotonicity implies local nonsatiation, but not the other way around.
To see this:
Claim: Let $\succsim$ be a monotonic ...
- 1,229
6
votes
Accepted
Finding demand functions for an unusual utility function
I assume you know how does $\min\{x,y\}$ look like? In order to draw utility function of interest, you need to consider cases: $u(x,y)=x+\min\{x,y\}=\begin{cases}2x, \;\; \mathrm{for} \;\; x \leq y \\ ...
- 911
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