Giskard
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Criticism of Math in Economics
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42 votes

I find that the essay "The New Astrology" by Alan Jay Levinovitz (an assistant professor of philosophy and religion, not an economist) makes some good points. ...the ubiquity of mathematical theory ...

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Should selling price depend on product quality or on work to produce the product if both not in positive correlation?
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32 votes

No one is "right" here, there is rarely a "should" in economics, it is not about morals. When making a purchase, you are usually willing to pay an amount $x$ larger than the price $...

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Do companies have non compete agreements between each other?
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30 votes

This is known as dividing markets or market allocation, and it is against the law in the US, the EU, and I imagine in most countries with antitrust laws.

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Does a store suffering increased theft generally cause higher prices?
29 votes

prices should have already been set to maximize the trade off between profit-per-sale and volume sold But profit-per-sale depends on costs, which depends on the theft numbers, so if theft increases, ...

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Criticism of Math in Economics
28 votes

I would like to point out that the question is not whether we should have math in economics, but why some people attack mathematical economics. A lot of the recent answers seem to try to answer the ...

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Why are real median household incomes stagnant?
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22 votes

The metric of median household income is also used by others to argue the presence of income inequality: https://en.wikipedia.org/wiki/Income_inequality_in_the_United_States#Causes However, it seems ...

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Why teach Arrow's impossibility theorem?
17 votes

What you describe has not much to do with Arrow's impossibility theorem. This is called the Condorcet paradox. The preference profile you gave is used to demonstrate that even if all individual ...

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Are there historical cases of country A printing the currency of country B for the main purpose of economic warfare?
13 votes

David Petruccelli writes in "Banknotes from the Underground: Counterfeiting and the International Order in Interwar Europe" In December 1925, a group of Hungarian nationalists were caught ...

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What precisely is scarcity?
12 votes

Your formula $\mu = \sum\limits_{i=0}^n x_i$ just denotes the total amount of goods, so this just means that $\mu$ units were distributed among $n+1$ agents. Scarcity (in this context) means that no ...

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What is the difference between contract theory and mechanism design?
12 votes

Contracts are a subset of all mechanisms where agreements are enforcable. An example of a mechanism that is not a contract: A second price auction (or Vickrey auction) is a truth-telling mechanism ...

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What are the causes of negative real interest rates?
10 votes

If there is inflation, what is your alternative? If you do not lend, your money loses even more of its value. A numerical example: If inflation is 5% and you can lend at 2% nominal interest rate, you ...

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Why don't profitable firms use previous profits to offset current loss
10 votes

It might make sense to cut the jobs as it looks like they will be operating at reduced capacity. The article does not say that they could not keep on the workers and "smooth" their yearly ...

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Fixed cost of a firm
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10 votes

It is the first one, $TC(0) = FC$. This is the definition. Also consider that it is not clear what is "transformed by $q$ in some way". In case of $$ \frac{5q}{q+1} + \frac{5}{q+1} $$ are the two ...

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How to show that a homothetic utility function has demand functions which are linear in income
10 votes

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 ...

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Real Life Examples of Optimization in Economics
9 votes

Optimization problems Some of the problems you mention do not seem that simple to me, e.g., "farmers choosing between different crops to grow based on expected harvest and market price" can ...

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Elasticity of demand equals -1 but income decreases!
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9 votes

We discourage numeric questions as they are unlikely to be useful for future visitors but this is a very good example of why using non-marginal quantities can be misleading. The exact definition of ...

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Correlated equilibrium intution
9 votes

An example to highlight the difference between correlated and uncorrelated random strategies in games of perfect information. Consider a game of Chicken with the payoff matrix Straight Chicken ...

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The Printing of Money for Paying Debt
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9 votes

Printing money causes inflation because someone (or some institution) will get the money and will spend it somehow. This increases demand for goods, but the number of goods, the supply was not ...

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What is the point of silent auctions?
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9 votes

But perhaps this is not always the case. The price might have been so high that you would not have been willing to bid above it. In fact it might have been so high that the no one but the highest ...

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Which capital accumulation is right? $K_t = (1-\delta)K_{t-1} +I_t$ or $K_t = (1-\delta)K_{t-1}+I_{t-1}$?
9 votes

Both are economically sound. The notation is just a question of convention. The reason behind the ambiguity is that capital is a stock and investment is a flow variable. You are looking at capital in ...

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Elasticity and logarithms
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8 votes

Because $a$ is a parameter, and so $$ \eta = \frac{ d \log y}{d \log x} = \frac{ d \log a + d \ b \log x}{d \log x} = 0 + b. $$

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Will a Guaranteed minimum income not eventually just be crowded out by inflation?
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8 votes

I will not discuss fairness (for example employers gains versus employees gains and bargaining power) principles as you did not ask about those. Is "crowding out" the right phrase here? Even ...

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Why are Portuguese migrating out of Portugal?
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8 votes

As you write, fertility rate explains most of it, and immigration explains the rest. People tend to migrate to richer countries, and Portugal is below average EU income. (Portugal is an EU member. ...

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Do the three ways of measuring producer’s surplus give the same result?
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8 votes

Ask your teacher what he meant, because there is either a misunderstanding or he is mistaken. Producer's surplus will come down to $y \cdot p - VC(y)$. In the first graph, by definition of $AVC$ we ...

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Can a closed economy flourish?
8 votes

It depends on what you mean by "sustained growth" and "flourishing markets". Clearly the Earth as a whole is a big market. If you do not look at human made borders: the global economy is currently ...

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Term for fraction of economic value earned?
8 votes

You seem to be looking for the phrase 'wage share' or 'share of labour compensation'. Wage share: The wage share (or labor share) is the ratio between compensation of employees (according to the ...

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Why is 10% the necessary upper bound for a negative interest rate?
8 votes

Assuming your home is safe, would you keep your money in a bank that only gave 96% of it back? (-4% interest rate) What if your home has mice which eat exactly 10% of your money? Would you then keep ...

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Was there any currency backed by other metals than gold, silver or copper?
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7 votes

Spartan iron coins. Roman bronze coins: Aes Grave Chinese bronze coins: Ban liang (one type was bronze, not all) A non-metal "currency" backed by various industrial metals: the ...

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Fundamental question on marginal utility
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7 votes

How is marginal utility interpreted as the additional "happiness" gained from consuming one more unit of some good? Not sure what you mean. Utility is not interpreted as some biological ...

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Second order stochastic dominance
7 votes

The answer to 1. Your conjecture is correct. Consider lotteries $A,B$ where $A$ guarantues a payoff of 1 while $B$ yields 0 or 4, each with 50% probability. $B$ does not SOSD $A$, as you can easily ...

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