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12

Models are more than just math. Model is a simplification of a reality that allows you to study the underlying mechanisms. Models do not need to be mathematical. Many people actually create models without even realizing it. For example, if someone says "minimum wage will not lead to unemployment" that person is actually having a model even if they never ...


11

To extend @Majoko's comment, you may be very interested in the book Poor Economics which discusses many of the issues you note. It specifically discusses issues with theory, and of course has a lot of empirical work to back it up. Perhaps on the other end of the spectrum is general equilibrium theory applied to poverty and the developing world. you should ...


8

The concept of Opportunity Cost is not used in order to net the direct benefit of a choice, but in order to compare it to the direct benefit of alternative choices. How do we go about using it in Economics? 1) We gather all available alternative choices, say $A, B, C$ 2) We measure (in whatever way appropriate for the situation) the benefit from each ...


8

It is possible. We normally think demand and supply are more elastic in the long run because consumers/firms have more options in the long run. For example if gas becomes more expensive consumers can buy more more fuel efficient cars. So what if consumers or firms are more constrained in the long run? This could be the case when goods are storable. ...


7

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 quantities of this good, $q_1<q_2<q_3$, with $q_2-q_1 = q_3-q_2$. Preferences are well behaved and satisfy the benchmark regularity conditions, so $$u(q_1)&...


7

There is a type of protection called a liability rule, where I, $A$, can take something from $B$, if I pay the damages $c$ which are court-ordered preemptively. Copyright law is all about liability rules. If the damages are correlated with $B$'s valuation appropriately, then efficiency holds. You are interested in the opposite case. If IP law doesn't get it ...


7

From reading a selection of writings by Marx, I have come to understand the following three as the core elements of Marxian economics. The labour theory of value. It asserts that the exchange value of a commodity $x$ (what quantities of $x$ that can be exchanged for another commodity) is determined by that labour time which is socially necessary to produce $...


7

There are trends that has allowed stock markets in advanced economies to grow faster than GDP for a long time: Branching out abroad. This gives access to faster growing markets in developing countries. This trend will end when all countries are advanced economies. Fewer private companies. This trend will end when most of GDP is generated by companies listed ...


7

The first order stochastic dominance relation is convex. An easy way to prove this is to use the property that a cdf $F$ FOSD another cdf $G$ if and only if $F(x)\le G(x)$ for all $x$. That is, $F$ FOSD $G$ if and only if the graph of $F$ is never above the graph of $G$. It is then easy to show that $F$ is never above any convex combination $H(x)=\alpha F(...


6

Roughly, people produce "stuff" by spending their time working (labour) and by employing machinery/tools/land/etc. (capital). If you have more workers or more machinery then it should not come as a surprise that more goods and services get produced. But this is only part of the story. Even if we divide by the number of people to get the size of the economy ...


6

Gains and losses presuppose a reference point, which is not a feature in standard expected utility theory. In this theory, the only argument in the utility over wealth is $w$, the absolute level of wealth. A common form of utility function is the constant relative risk aversion (CRRA) form: \begin{equation} u(w)=\frac{w^{1-\rho}}{1-\rho}, \end{equation} ...


5

The term bounded rationality was introduced by Herbert Simon. He wrote "The term, bounded rationality, is used to designate rational choice that takes into account the cognitive limitations of both knowledge and cognitive capacity. Bounded rationality is a central theme in behavioral economics. It is concerned with the ways in which the actual ...


5

Your toy example does not really happen in standard economic models. For one, because we assume identical preferences. Therefore, to the extent that we similarly care about different individuals, we need similar consumption (or whatever enters their utility) to maximize welfare. That does not mean that all allocations are the same. It could be that one of ...


5

First let's look at the specific tax. The profit is $$\pi_s=[P(q)-\tau_s]q-C(q).$$ Differentiating to establish the first-order condition: $$P'(q)q+P(q)-\tau_s-C'(q)=0.$$ If we write $A=\tau_s q$ for the tax revenue then we can rewrite the FOC thus: $$P'(q)q+P(q)-C'(q)=\frac{A}{q}.$$ Now for ad valorem: $$\pi_a=(1-\tau_a)P(q)q-C(q)$$ First-order condition: $...


5

Survivorship bias. (Credit to @nathanwww's answer. Here I merely add a few details.) The Dow Jones Industrial Average (DJIA) was first published at 40.94 on 1896-May-26. It closed at 24,448.69 on 2018-Apr-23. Let's call that 122 years. That's a 5.4% annual compound growth rate — certainly faster than the US GDP growth rate over that 122-year period. ...


5

That's just a question of notation. Note that $$\mathcal{d}F(t) = f(t)\mathcal{d}t$$ Then the proof should be easy to understand.


5

Let's be clear--the concept of utility is both unfalsifiable (as a singular proposition) and useful. Joan Robinson is right, of course: Utility as a definition is circular. If you read a textbook that discusses the foundations of economic theory (such as the popular graduate text by Mas-Colell, Whinston, and Green), then you start not with utility, but with ...


4

The fact that you ask about "safety" implies that you believe that some result is in jeopardy. This answer can be improved if you can specify a result that you might have in mind. Otherwise, take as an example the first and second welfare theorems. They do not rely on decreasing marginal utility. If you're concerned about results about preferences over ...


4

Below I'll give you a partial answer by talking about research on poverty traps. Before that, though, let me point out that it is a bit difficult to find any theory that is not motivated by observations. Theories of poverty often have a trap because theorists want to explain why there are locations in the world where everyone is poor, and other places ...


4

If you are looking for a light-weight, definitely somewhat partisan take on development economics (I realize this is only part of what you want) check out The Elusive Quest for Growth: Economists' Adventures and Misadventures in the Tropics. It goes into the theory and history of development economics and its application to policy. If you're looking for a ...


4

There is a quantification of this "utility monstrousness" in the fair division model. In that model, a resource has to be divided among $n$ partners, all of whom have the same rights to that resource but different preferences over parts of the resource. A division is called fair (according to one definition) if each person receives at least $1/n$ of the ...


4

One recent paper that is being positioned as a very wide-ranging theory of bounded rationality (although certainly it doesn't come close to capturing every insight in the field) is Gabaix's forthcoming QJE, A Sparsity-Based Model of Bounded Rationality. Gabaix formulates a fairly general model where agents can rationally decide to pay limited attention to ...


4

Let me preface this answer with a word of caution: your question is a very good and important one but it is also one that depends tremendously on the definitions of the terms it uses. I'm going to attempt to answer it in the most unassuming and non-technical way. You could pose it in technical terms and get a more precise answer. The wealth of the rich can ...


4

It is my impression that it is "bean-bricks" and it is not a book but a paper/essay under the title "The long-range economic effects of automation", which was included in the book HERBERT, A. S. (1965). The Shape of Automation for Men and Management. Go to the on-line digital library of Carnegie Mellon University and enter in the search "The Economic ...


4

A closed set does not need to be bounded. For instance, the set $[0,\infty)$ is closed but unbounded. Formally, a set is closed if it contains all its limit points. You can easily verify that it is the case for your $C$. Take a sequence of elements $x^m=(x_1^m,\cdots,x_n^m) \in C$ that converges to a vector $x^{*}=(x_1^{*},\cdots,x_n^{*})$ under any ...


4

Not to suggest that this should become a list of the best econ related https://xkcd.com/552/ and http://phdcomics.com/comics.php but I always really liked that one:


4

A physicist a chemist and an economist are stranded in a deserted island after a wreckage. They have managed to salvage a case of canned food, but they have nothing to open the cans, and the island is a true paradise -meaning, all sand and beaches and soft bushes -but no stones, nothing hard. The physicist and the chemist try to put their scientific ...


4

No, they don't negate the broken-window fallacy. You're overthinking it, and that's leading you to the wrong conclusion. The breaking of the window represents a loss of wealth. The activities around it are neither here nor there - they do not change the fact that the breaking of the window represents a loss of wealth. The existence of functional insurance ...


4

Why not using the number of workers? And simply replacing sales (or output) by workers in the HHI or C4 indices. I saw this in the literature, but where? May be in a report of the German "Monopolkomission"... EDIT: I found an example for France. The share $C_{10}$ of the production of the 10 biggest firms is very correlated with their share in total ...


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