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5

Examples where this happens are always extreme and contrived. I can think of two kinds of examples. The first is where you have an asset that for some reason has a price of zero or negative but a positive payoff in some states (perhaps no other asset pays off in that state). The second is where you have two assets with positive prices that have negative ...


4

O'Sullivan & Hilliard write: Consumer surplus is a "type of non-financial loss" and can be defined as the amount by which the particular plaintiff values performance of a particular obligation over and above its market value. This is identical to the economist's definition of consumer surplus. Using Pindyck and Rubinfeld's example: If a student was ...


1

This may just be a semantic misunderstanding. The Law of Diminishing Marginal Utility (LDMU) does "affect" the price in the sense that it is responsible for the convexity of preferences, which in turn guarantees a well-defined price effect. The formulation "price effect = income effect + substitution effect" is just a short way of saying that the change in ...


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