40 votes

Economics term for those who benefit even though they didn't contribute

I think the economic term is free-riders.
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  • 8,632
16 votes

Piracy/File sharing - Why aren't songs, movies or ebooks given for free (+ads) like TV?

It's called a Principal-Agent Conflict. The RIAA/MPAA act as agents on behalf of the people who actually produce content (and consequently end-consumer value). To maintain relevance to their ...
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16 votes

Is scalping tickets harmful?

There is a good Planet Money episode on ticket scalping; I recommend it. The reason for banning ticket scalping has nothing to do with economic harm, and everything to do with making the arts (or ...
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14 votes

The relationship between the expenditure function and many others!

Following up on the excellent MWG diagram in Amstell's answer, the fundamental observation needed is that holding $p$ fixed, $e$ and $v$ are inverses of each other. $e$ tells us the amount we need to ...
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13 votes
Accepted

Marshallian Demand for Cobb-Douglas

Since $a + b=1$ the equations are exactly the same. Substituting in for $a+b$ with $1$ in the third and fourth equations gives the first and second equations.
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  • 15.8k
13 votes
Accepted

Gross substitutes vs. net substitutes

Intuitively, a higher price for pears means that I have to give up more apples to be able to afford an extra pear (or, conversely, if I give up one pear then the number of extra apples that I can ...
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  • 16.6k
13 votes

The relationship between the expenditure function and many others!

Not sure how much this will help, but the diagram in Mas-Colell p.75 is something I always have in mind when deriving these functions. I'm not sure what books you're using, but Microeconomics by Mas-...
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  • 346
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 ...
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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 ...
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12 votes
Accepted

Do perfect complements have to be normal goods? If so, why?

A good is normal if its demand is increasing in income. So let $p_x$ and $p_y$ be the price of the goods with quantities $x$ and $y$ and let $m$ be income. Suppose $ax>by$. Then $\min\{ax,by\}=by$....
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11 votes

Is it possible to derive indifference curves given marshallian demand function?

Yes, under some conditions. This is the classic integrability problem: for detailed discussion, see some excellent notes by Kim Border. Several other technical conditions are required, but the most ...
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11 votes

Why does Slutsky compensation "overcompensate" the consumer?

Here's a figure to explain: Starting from the old price line, where the optimal consumption bundle is point $A$, we increase the price of $y$ to get the new price line. The Slutsky compensation says ...
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10 votes

What are Giffen Goods?

Consider the Slutsky equation, $$ \frac{\partial x}{\partial p} = \frac{\partial x^c}{\partial p} - \frac{\partial x}{\partial I} x. $$ A giffen good is the case where the income effect $\frac{\...
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  • 9,127
10 votes
Accepted

What is an example application of a quasilinear utility function?

Quasilinear utility functions are useful in much of the demand estimation literature, particularly in discrete choice. For instance, check out Berry 1994,Berry Levinsohn Pakes 1995 and the many ...
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  • 358
10 votes
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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 ...
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9 votes
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When can one safely talk about decreasing marginal utility?

The concept of "marginal utility" (and therefore of decreasing such) has meaning only in the context of cardinal utility. Assume we have an ordinal utility index $u()$, on a single good, and three ...
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9 votes

What are Giffen Goods?

There is rather low probability for demand of a good to exhibit the Giffen property at market level, where averaging over heterogeneous preferences, different income levels and consequent ...
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9 votes

Piracy/File sharing - Why aren't songs, movies or ebooks given for free (+ads) like TV?

The simple answer is that they don't think they would make as much money. In many countries illegally downloading music or movies is getting harder and harder. The recording industry has achieved this ...
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  • 235
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 ...
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8 votes
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Current knowledge about the empirics of consumer theory

The primary literature concerned with this type of question (at least where classical results break down) is behavioral economics. There's a great general compilation of papers put together by the ...
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  • 1,040
8 votes
Accepted

Does a monotonic transformation of a homothetic utility function imply the preference relation on the set of consumption bundles is still homothetic?

Yes. We know that a monotonic transformation of a utility function still represents the same preferences and as the old utility function represented homothetic preferences the new one does, too. As ...
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8 votes
Accepted

Does concavity of the utility function has any bite?

This post shows clearly why in the world of "standard" ordinal utility, concavity of a utility function cannot obtain an economically meaningful interpretation, although it may be useful as a ...
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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 ...
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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 ...
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  • 967
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 ...
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  • 6,409
8 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 ...
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7 votes

Marshallian Demand for Cobb-Douglas

This is how you get from your first equation to your second. your utility function is $u(x_1, x_2)=x_1^a x_2^b$ since $a+b=1$ I'll change it slightly to a and (1-a) In order to optimise these two ...
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  • 3,721
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 ...
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  • 26.2k
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 ...
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  • 1,822
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 ...
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