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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 $\\...
1muflon1's user avatar
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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? ...
eps's user avatar
  • 230
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 ...
Alecos Papadopoulos's user avatar
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 ...
Araucaria - Not here any more.'s user avatar
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 ...
Brian Romanchuk's user avatar
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 ...
Theoretical Economist's user avatar
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 ...
luchonacho's user avatar
  • 8,591
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)...
probably_someone's user avatar
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, ...
LudwigNagasena's user avatar
5 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 ...
1muflon1's user avatar
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5 votes
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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=...
Michael Greinecker's user avatar
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 ...
Giskard's user avatar
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5 votes

Universal Basic Income (UBI) policy proposals optimal hours worked and consumption

That's correct, but it would be easier and faster to use (i) $v=u^3=CL^2$ instead of $u$ as your utility function (which is allowed since $v$ is a positive transformation of $u$), and (ii) the rule ...
VARulle's user avatar
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4 votes
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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/...
1muflon1's user avatar
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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, ...
Alecos Papadopoulos's user avatar
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 ...
Alecos Papadopoulos's user avatar
3 votes
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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. ...
Alecos Papadopoulos's user avatar
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 ...
Will Appleby's user avatar
3 votes
Accepted

Intertemporal Utility Optimization For Multiple Goods

I think you are implicitly assuming that the level of consumption from period 2 onwards will remain constant. In general, this will not be the case (e.g. if $\beta$ is lower than $1/(1+r)$ you will ...
tdm's user avatar
  • 12k
2 votes

How does one calculate an optimal consumption bundle if the MRS only contains one variable?

I wanted to add this as a reply to denesp's comment, but I do not have enough reps. MRS and a binding BC gives a system of two equations from which we can solve the optimum bundle. In case of income ...
erik's user avatar
  • 721
2 votes

why not use $Ap - p$ instead of $p - Ap$?

$p$ represents total production. $Ap$ represents the intermediate goods and services used in production, i.e. intermediate consumption. So $p-Ap=(I-A)p$ represents net production, i.e. output minus ...
Henry's user avatar
  • 4,765
2 votes
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Is the study of the volunteer sector inappropriate for a labour economist?

I would agree that volunteered labor is a utility enhancing activity. Seen as a good, its price could be the opportunity cost, i.e. the wages foregone (for not working for pay). But then this is not ...
Alecos Papadopoulos's user avatar
2 votes
Accepted

Log-linearisation Euler Consumption Equation

To simplify matters, let's call the right-hand side of your starting equation $X_t$ Then, I start just like you did with $1 = X_t$ The difference between your solution and Gali's is that you took ...
Chris tie's user avatar
  • 870
2 votes

Optimal choice for a weird leontief function

One needs to go case-by-case and arrive at a utility function with branches. To get you started, if $x_1 < x_2/2 \implies \min(2x_1,x_2) = 2x_1$, but then also $\min(x_1,2x_2) = x_1$. Therefore in ...
Alecos Papadopoulos's user avatar
2 votes

How do imports affect GDP?

In the expenditure measure of GDP $$Y = C + I + G + (X – M)$$ imports $M$ appear to reduce GDP. However, this only offsets the consumption $C$ met by imports; if instead the money had not been spent ...
Henry's user avatar
  • 4,765
2 votes
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Market baskets: cross-border comparisons

It's very likely that that these major categories in the hierarchy of goods in the market basket differ somewhat by country. The sub-categories within these major groups are even more likely to ...
AlexK's user avatar
  • 458
2 votes
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Physical goods in a typical household

Those are some good starting points but I would refrain from using them as the end result. There are some fatal logical jumps in your example. Moving house: A good one to use. If I were to guess, I ...
Student's user avatar
  • 162
2 votes

Why do the income and substitution effects cancel for log preferences? Trouble reconciling Slutsky decomposition

You interpreted the passage you read as essentially saying that "with log preferences, the Marshallian demand for the good does not depend on its price." That doesn't sound very plausible, don't you ...
Alecos Papadopoulos's user avatar
2 votes
Accepted

Marginal rate of substitution notation:

It is implicit in the interpretation: Mas-Collel: the amount that must be given (+) to compensate for a reduction (-). Reny: The rate at which good j can be exchanged (+ & -) for good i. ...
Regio's user avatar
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