# Tag Info

Accepted

### Econ Intuition for Jacobian inverse in demand system

For the 2x2 case being considered, write $$\mathbf{B}=\left[\begin{array}{cc} b_{1,1} & b_{1,2}\\ b_{2,1} & b_{2,2} \end{array}\right].\quad$$ It follows that the element (1,1) in $B^{-1}$ is ...
• 595

### How was CES utility function derived?

To understand the CES utility functions, which I guess is your question, a good starting point is the Wikipedia page on constant elasticity of substitution. In particular, The CES aggregator is also ...
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### How was CES utility function derived?

The C.E.S functional has been introduced in Economics in the context of production theory, by Arrow, K. J., Chenery, H. B., Minhas, B. S., & Solow, R. M. (1961). Capital-labor substitution and ...
• 33.8k
Accepted

### Contradictory FOC and maximizing solution

As alluded to by Bertrand in his +1 comments this is because FOCs do not tell you where maximum or minimum occurs. This is common misconception among some students but it simply does not hold. FOCs ...
• 56.4k
Accepted

### If $X$ is a Giffen good then $Y$ must be a normal good

Reason: Both goods cannot be inferior. Let's say originally you consume $x$ and $y$. So your budget constraint looks like $$p_x x + p_y y = I.$$ If both X and Y are inferior, when income goes down ...
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### Hardcore elasticity of substitution (bad results)

I think that making the substitutions you overlooked some dependence on $z=x_3/x_1$. I mean, if you look at your calculations, you will find some $x_3/x_1$ which is not substituted by $z$.$^1$ By the ...
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### Empirical measurements of consumption and production elasticity of substitution?

The elasticity of substitution of production factors derived from empirical data depends on the data. In the case of simple production, you can estimate the production function (fit your data to the ...
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Accepted

### Derivation of the elasticity of substitution of a general production function with labor-augmenting technological progress

You have that in equilibrium each factor is paid its marginal product, so $$\tag1\frac{w_i}{p_i}=B_if'(l_i)$$ and $$\tag2\frac{r_i}{p_i}=f(l_i)-K_if'(l_i)\frac{B_iL_i}{K_i^2}=f(l_i)-l_if'(l_i)$$ so ...
• 4,188
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### Meaning of «intertemporal substitution effect dominates the income effect»

I suppose the right approach is to start with the statement: "Real wage is also a positive function of productivity". Let's start with the income effect: If both goods, free time and ...
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### Example of a (not quasi-linear) production function whose inputs are not perfect substitutes but are not asymptotic at the axes

You could, for example take the function $f: \mathbb{R}^2_+ \times[0,1] \to \mathbb{R}$. $$f(L,K, \rho) = L + K + (1-\rho) L K.$$ For $\rho = 1$, we have $f(L, K, 0) = L + K$ which is a production ...
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### Is there a standard term for the elasticity of an isoquant?

The OP has correctly defined the "isoquant elasticity", for which one could argue that it should be the basic definition of "elasticity of substitution". The reason why Hicks ...
• 33.8k

### Krugman Model: Profit Maximization (relation price elasticity of demand and elasticity of substitution)

Your Lagrangian has a $p_i$ in the first term that shouldn't be there.
• 6,805
Accepted

### LSE EC417 2023: Markup as Elasticity Tends to Unity

A monopolist will always produce on the elastic part of the demand curve. The idea is the following: if the output level is on the inelastic pat of the demand curve, then increasing prices, by 1% will ...
• 12k
1 vote
Accepted

### Elasticity of substitution by regression: Biased results (simulation)

I am answering my question because I have found the solution. The thing is: I have started with the wrong premise and therefore reached poor conclusion. Due to this I will edit the question a little ...
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1 vote

### Complements/substitutes estimation from data (Slutsky matrix)

If you neither observe the utility level nor the expenditure (or income) level, it seems not possible to identify separately Hicksian and Marshallian demands. So it is not advisable to impose symmetry....
• 3,351
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 ...
1 vote

### Elasticity of Substitution of CRS Production Function

1muflon1's answer is entirely correct. Let me give another alternative derivation, which might be a little bit easier to remember, although probably not more intuitive. Let $k = K/L$ be the capital to ...
• 12k
1 vote

### How to compute elasticity of substituion in general?

The formula you already have there is a general formula for elasticity of substitution, but I can see that it might be difficult to apply to your problem here given that $MU_{x_2}=1$. There is also ...
• 56.4k
1 vote

### Price elasticity of demand of CES

Assuming that $p_i \neq p_j$ you just apply the formula; \epsilon_i(p_i,I,P) =-\dfrac{\partial d(p_i,I,P)}{\partial p_i}\dfrac{p_i}{d(p_i,I,P)} \\ = -\left( \frac{-\sigma p_i^{-\sigma-1} I}{P^{1-\...
• 56.4k
1 vote

### Calculating price elasticity by asking a "this" or "that" question

The elasticity of demand measures how changes in prices affect changes in quantities demanded So if you have the total quantity demanded at the original prices and reduced them by, say, $10\%$, then ...
• 4,188
1 vote
Accepted

### Second order partial derivative and cross second-order partial derivative

Is there anyone who can help me with this? Here it is. Equations 1-3, and 5-6 are obtained in preparation for the 2nd derivatives of V with respect to L and K. Let me know if you have any questions.
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