30
votes
Accepted
If I gain, then someone else loses. Correct?
I completely agree with denesp's answer, however I think you can make it even simpler.
On a very small scale, it's certainly true that if I gain, somebody
else might lose. If I take away my ...
- 1,682
18
votes
If I gain, then someone else loses. Correct?
This is a fundamental question which economics can answer quite well.
I'll rephrase your question a little bit- Is economics a zero sum game?
The answer is no. Certainly some transactions are, but ...
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15
votes
If I gain, then someone else loses. Correct?
As a complement to the great answers already here, let me give an even simpler small scale example in which you win and no one else loses:
Suppose you have a broken fan at home.
Scenario A: you ...
14
votes
The relationship between the expenditure function and many others!
Following up on the excellent MWG diagram in Amstell's answer, the fundamental observation needed is that holding $p$ fixed, $e$ and $v$ are inverses of each other. $e$ tells us the amount we need to ...
- 3,692
14
votes
Accepted
Lexicographic preference relation cannot be represented by a utility function
We can say more generally that lexical preferences are not representable using a continuous utility function. Lexical preferences are not continuous. Note the definition of a continuous preference ...
- 1,216
14
votes
Why are utility functions typically assumed to be concave?
I disagree with @bbecon. I agree with @bbecon that concave utility functions present nice mathematical properties which help theorists develop analytical models.
If the OP's question was why utility ...
- 281
13
votes
The relationship between the expenditure function and many others!
Not sure how much this will help, but the diagram in Mas-Colell p.75 is something I always have in mind when deriving these functions. I'm not sure what books you're using, but Microeconomics by Mas-...
- 346
13
votes
Accepted
Gross substitutes vs. net substitutes
Intuitively, a higher price for pears means that I have to give up more apples to be able to afford an extra pear (or, conversely, if I give up one pear then the number of extra apples that I can ...
- 16.6k
13
votes
Is the market price objective?
The market price is the current price at which something may be bought or sold. If a good is not sold or bought at a particular price, then that is not the market price. Whether or not any particular ...
- 683
12
votes
How to derive utility function from indirect utility in this exercise
Use Roy's identity to find demand functions:
$$\displaystyle x_1=-\frac{\frac{\partial v}{\partial p_1}}{\frac{\partial v}{\partial y}} =-\frac{\alpha yp_1^{\alpha-1} p_2^\beta}{p_1^\alpha p_2^\beta}=-...
- 5,142
11
votes
Accepted
Cobb-Douglas and Logarithm Utility Functions
Utility functions are invariant with respect to positive monotonic transformations (PMT).
Take $U(x,y)=x^\alpha y^{1-\alpha}$, and let $V(x,y)=\log(U(x,y))$ be a PMT of $U$.
Thus $V$ and $U$ both ...
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11
votes
Accepted
Finding demand function given a utility min(x,y) function
No, you should not use Lagrange multipliers here, but sound thinking. Suppose $x\neq y$, say for concreteness $x<y$. Let $\epsilon=y-x$. Then $\min\{x,y\}=x=\min\{x,x\}=\min\{x,y-\epsilon\}.$
So ...
- 9,760
11
votes
Is it possible to derive indifference curves given marshallian demand function?
Yes, under some conditions. This is the classic integrability problem: for detailed discussion, see some excellent notes by Kim Border.
Several other technical conditions are required, but the most ...
- 3,692
11
votes
Accepted
Economic theory journals for a refinement theorem about utility function representation
For theory you have in order of prestige... (I know subjective)
Journal of Economic Theory
Theoretical Economics
AEJ-Micro (only micro)
Mathematics of Operations Research (OR related)
Games and ...
- 8,632
10
votes
How to show that a homothetic utility function has demand functions which are linear in income
I think what you need is that if $U(x,y)$ is homothetic then
$$
\forall \alpha \in \mathbb{R}_{++}, \forall (x,y) : \hskip 6pt
\frac{\frac{\partial U(x,y)}{\partial x}}{\frac{\partial U(x,y)}{\partial ...
- 26.2k
10
votes
What are examples for the phenomenon that more (or better) information makes everybody worse off?
This sounds glib, but The Internet is an ongoing example.
In economic models where access to information is an explicit factor, we often gloss over the fact that mere exposure to information about ...
- 1,798
10
votes
What are examples for the phenomenon that more (or better) information makes everybody worse off?
The “to be announced” or TBA market for agency mortgage-backed securities is a great example of this.
The short version is as follows: The TBA market is a market wherein one can purchase or sell for ...
- 6,255
9
votes
Accepted
When can one safely talk about decreasing marginal utility?
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 ...
- 31.9k
9
votes
Accepted
Why is CRRA utility often used in macroeconomics DSGE model?
Models at Dynamic Stochastic General Equilibrium level must be able to replicate real economies to an acceptable degree. One of the features of real economies has been a relatively stable growth rate (...
- 31.9k
9
votes
Accepted
Sum of Homothetic Functions
Defn: A function $h:\mathbb{R}^2\rightarrow \mathbb{R}$ is homogenous of degree $k$ if for every nonzero $\alpha$, $h(\alpha x, \alpha y)=\alpha^k h(x,y)$.
Defn: A function is homothetic if it is a ...
- 967
9
votes
Is the market price objective?
The vast majority of economists subscribe today to the subjective theory of value that was in economics introduced by Jevons, Walras, and Menger. Subjective theory of value posits that value is ...
- 42.3k
8
votes
Accepted
Current knowledge about the empirics of consumer theory
The primary literature concerned with this type of question (at least where classical results break down) is behavioral economics. There's a great general compilation of papers put together by the ...
- 1,040
8
votes
Accepted
Help understanding Lagrangian multipliers?
A constrained optimization function maximizes or minimizes an objective subject to one or more constraints. As I understand it, the Lagrangian multiplier approach transforms a constrained optimization ...
- 15.8k
8
votes
What is an example of a utility function where one good is inferior?
A good cannot be inferior over the entire income range.
The paper A Convenient Utility Function with Giffen Behaviour shows that for a person with utility of the form:
$$U(x,y) = \alpha_1 \ln(x-\...
- 15.8k
8
votes
Accepted
Can A Utility Function Take On Negative Values?
A utility function can certainly be negative. The utility function is nothing more than a way to represent a preference relationship. This is an important conceptual point. In several theorems that ...
- 9,137
8
votes
Accepted
Is the Cobb-Douglas Utility Function Locally Non-Satiated at (0,0)?
No.
Cobb-Douglas utility is monotonic and monotonicity implies L.N.S.
The issue here is that you're only considering edge cases. You've correctly reasoned that edge points are not more desirable that ...
- 2,891
8
votes
Accepted
Doesnt convexity prevent thick indifference curves aswell?
My approach would be to define thick indifference curves in terms of a stronger form of local non-satiation:
Definition (thick indifference curves) Preferences are said to have thick indifference ...
- 16.6k
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