40 votes

Why do low-income earners tend to spend more?

Marginal propensity to consume is the proportion of an aggregate raise in pay that a consumer spends on the consumption of goods and services, as opposed to saving it. If someone gets extra income $\\...
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  • 41.5k
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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13 votes

Why do low-income earners tend to spend more?

Have you ever heard of 'living paycheck to paycheck'? It's another way of saying the person spends all the money they take in. How many millionaires live paycheck to paycheck? How many poor people? ...
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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
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

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

Why do low-income earners tend to spend more?

This is about the ratio of spending to saving. It does not mean that low-income earners spend more money than high-income earners. It means that low-income earners spend, as opposed to save, a greater ...
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6 votes
Accepted

Intuition for the CES consumption index in New-Keynesian DSGE models

Heuristically, you can think of the integral as just a sum: $$ \bar{C} = \left( \sum_{i=1}^n C_i^{1-\frac{1}{\epsilon}} \right)^{\frac{\epsilon}{\epsilon - 1}} $$ where $\bar{C}$ is an index of ...
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6 votes
Accepted

Is there an economically sound way to decide between buying media or a streaming subscription?

Partly your question relates to more general questions like "buy versus rent a house", or "buy versus lease a machine". Under neoclassical assumptions of competition, full ...
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  • 8,437
6 votes

Why do low-income earners tend to spend more?

It's expensive to be poor. Not being able to meaningfully save money for a big purchase means that you lose the potential financial benefits that big purchase might have given you. This is (humorously)...
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6 votes
Accepted

For any small perturbation dx, utility cannot change, or else, x* would not be optimal

It is basically a restatement of the first order condition - at an extrema (maxima or minima) of a well-behaved function its first derivative is equal to zero. If you are at the point of maximization, ...
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5 votes
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What was happening in Madagascar during 1971-1996?

I think I have found the explenation for this. If you look at the wikipdedia page of the economy of Madagascar, it states the following: The standard of living of the Malagasy population has been ...
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  • 419
5 votes
Accepted

Is $(\mathbb{R}^m)^n$ the real coordinate space of dimension $m\cdot n$?

No. And yes. For any set $X$ we have (by definition) $$X^k=\underbrace{X\times\cdots\times X}_{k\text{-times}}=\{(x_1,x_2,\ldots,x_k)\mid x_i\in X\text{ for }i=1,\ldots,k\}.$$ Now let, for example, $m=...
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5 votes

Why do companies and stores never seem to take into consideration the fact that few people want ugly colours of the same product?

Confirmation bias While there could be economic reasons for some of these phenomena, I think you are very likely experiencing confirmation bias. You are retelling personal stories that fit the ...
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  • 26k
4 votes

How does a reduction in consumer spending in favour of consumer saving, affect economic activity?

Such a "planned" and sought-after re-allocation of given income from consumption to saving, is justified only if the savings in an economy are sub-optimal (or we think so), in the sense of hurting the ...
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4 votes

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

Firstly there are services like this in Spotify, and even radio and tv, but it sounds like you are talking about downloading the material with ads in. That causes a problem. Revenue from ads relies ...
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  • 1,428
4 votes

Saturation of durable goods

"Durable goods" are a form of utility-generating capital. But they are capital, and what is actually generating utility is the flow of services from them, not them directly. So when we buy a durable ...
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4 votes
Accepted

What are some of the economic arguments for gender-neutral marriage?

tl,dr: I don't see an economic argument for GN marriage, or marriage in general what-so-ever. Frictionless environment All spending on marriage, are nothing more than consumption goods. There is no ...
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  • 10.4k
4 votes
Accepted

How does the GDP multiplier work?

The multiplier comes from the solution to the goods market equilibrium. In economics everything is endogenous. Increase in income increases consumption that increases demand, demand increases ...
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  • 41.5k
4 votes
Accepted

What would be the economic effect of widespread instances of individuals paying off consumer debt?

This left me wondering what happens to the wider economy when people decide en masse rather than spending their disposable income on consumer goods/services, to instead pay down their debt and save/...
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  • 41.5k
3 votes

What are the economic benefits of SLAPP in file sharing/piracy?

Background Since the marginal cost of distribution for a creative work such as a song is now essentially zero, the efficient thing to do would be to provide all songs to listeners at a price of zero (...
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  • 16.6k
3 votes

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

Isn't this mostly an issue of pricing at a level where most people feel it's worth paying to avoid the hassle (and potential legal issues) of piracy? Take music singles for example: when I was a ...
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3 votes

What are the widescale economic ramifications of people holding onto their money instead of spending it?

The amount that people save depend on the marginal propensity to consume (MPC), i.e., part of the additional income that a person consume, hence, $1-MPC = savingrate$. Keynes assumed that with ...
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3 votes

How does a reduction in consumer spending in favour of consumer saving, affect economic activity?

As stated the Government successfully runs a campaign and people stop spending and start saving. Part of the answer depends on how they save, and the other part depends on how manufacturers react. ...
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  • 2,690
3 votes
Accepted

Effect of changing Non Labor Income on Consumption-Leisure problem

This has to do with the form of the utility function. Assume instead that,say, we had $$U(c,l) = c^{1/2} - \frac{1}{2}l^2$$ Does now $R$ affect the labor-supplied decision? Solve it and explore. ...
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3 votes

Precautionary Savings Two-Period model with a second period quadratic utility function

The two papers that explored first savings under uncertainty in a two-period setting are Leland, H. E. (1968). Saving and uncertainty: The precautionary demand for saving. The Quarterly Journal of ...
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3 votes

Preference for consumption smoothing and actual smoothing

The argument relayed in the question as regards consumption smoothing is flawed. Consumption smoothing does not mean consumption equality over periods, but rather, tendency to avoid corner solutions, ...
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2 votes
Accepted

Re-evaluation of Consumer Price Index (C.P.I.) weights

I don't think they are "sure", but the weights are based on the American Consumer Expenditure Survey which has a big sample size, a carefully chosen sampling frame, professionally executed sample ...
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2 votes
Accepted

Liquidity trap and consumers' reaction to an increase in money supply

Good question. The answer depends on what exactly you mean by an increase in the money supply and how it is implemented. Because standard monetary policy (ie. open market operations) is implemented ...
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