VARulle
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Where can I learn random matching models?
3 votes

If you have in mind infinite populations I'd suggest Carlos Alós-Ferrer (1999) Dynamical Systems with a Continuum of Randomly Matched Agents, Journal of Economic Theory 86 (2), 245-267.

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Question about Marginal Utility
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3 votes

There is most likely an assumption in the background that utility is increasing in the amount of flour, independently of its packaging. Then you are willing to exchange two 1kg-bags of flour for one ...

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How are weak preferences different to strict preferences/indifference?
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3 votes

Assuming $u(x)=u(y)$. I am to prove or disprove that $x \succcurlyeq y$. Proof: The utility function $u$ represents your preferences $\succcurlyeq$ over consumption bundles. By definition of the term ...

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Fundamental question on marginal utility
3 votes

How is marginal utility interpreted as the additional "happiness" gained from consuming one more unit of some good? It is not. While it sounds somewhat intuititve, the concept of utility as ...

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Why are cost functions often assumed to be convex in microeconomics?
3 votes

Increasing and convex costs are a result of decreasing returns to scale. These are mainly due to the limited availability of (local) input factors. Other contributing factors are the decline of ...

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Social welfare in terms of preferences
3 votes

Usually one tries to construct a Social Welfare Function (SWF), i.e. a general rule how to aggregate individual preferences to a social preference relation. Then various axioms are formulated that a ...

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How are real income and utility the same thing?
3 votes

This might just be a misunderstanding. The textbook contains various passages like e.g. "An alternative approach holds real income (or utility) constant while examining reactions to changes in $...

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Optimal Price and Quantity of Externality
3 votes

Given that you already know the welfare maximizing level $h=5$ from your previous question, another approach would be to just consider that any optimal take-it-or-leave-it offer can be divided into ...

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Non monotonic supply curve
3 votes

In the context of labour supply. The Wikipedia page on it offers the following explanation: As wages increase above the subsistence level [...], there are two considerations affecting a worker's ...

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Rawlsian SWF and Arrow Impossibilty Theorem
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3 votes

Let's say there are individuals 1 and 2, and alternatives A, B, C, and D. Society uses the Rawlsian SWF and thus ranks alternatives according to their maximal rank within individuals' rankings. Denote ...

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How to set up the payoffs properly for a division of labor game
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3 votes

If you want "both don't clean" to be a Nash equilibrium (NE), then your payoff matrix doesn't work. With those payoffs, cleaning is a strictly dominant strategy and "both clean" is ...

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Should the "value function" be "utility function" in prospect theory?
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3 votes

The terminology in microeconomics is not completely unified but typically differs slightly from the mathematical one. For a real-valued random (outcome) variable $X$, the mathematical expected value $\...

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elasticity from inverse demand
3 votes

Yes, for the standard case of a strictly decreasing demand function $Q(p)$ and price-elasticity of demand $\epsilon_p(Q)=Q'(p)\frac{p}{Q(p)}$ the inverse demand function $p(Q)$ exists and by the ...

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Mathematics of the income and substitution effects
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3 votes

The (Hicks-) substitution effect is by definition the change in consumption of X induced by a change of the relative prices, holding utility fixed. Thus, the original budget line is "rolled along" its ...

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Prices set by firms are the same in a Salop circle. But why?
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3 votes

tl;dr: Prices are identical because firms are identical. Profits of firm $i$ depend on own price $p_i$ and on neighbors' prices $p_{i-1}$ and $p_{i+1}$. Prices are set simultaneously, therefore ...

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Intuition: Can someone explain me this contradiction please?
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3 votes

Figure 2 is a bit misleading. Both demand curves have an elastic and an inelastic region, just like the one in Figure 1. The meaning of "High elasticity " and "Low elasticity" in Figure 2 is that the ...

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Check for concavity, quasi-concavity with given value of function
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3 votes

First look at the shape of the indifference curves. (I assume that $f$ is a utility function here.) The better-sets are convex, so this is consistent with quasi-concavity of the function $f$. Second, ...

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Why is the substitution effect calculated before the income effect?
2 votes

That's actually just a convention. While these two methods to partition the total effect lead to different results for any discrete price change, they coincide in the limit of an infinitesimal price ...

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What is the intuition behind Expected Utility Theorem?
2 votes

We don't use the EUT for comparing lotteries with close probabilities, except if we are solving an exercise involving an Allais paradox type of question. We don't actually use it at all if we are not ...

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How to find pure strategy NE if you have a n X n matrix (n players)
2 votes

Think about the incentives of player $i$: If he knew that no one else helps, he'd want to help. If he knew that at least one other player helps, he'd rather not help. A single player helping would ...

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Utility maximization: pollution and housing prices
2 votes

In your maximization problem the resident chooses the level of pollution $u$. If he can really do this then the maximization problem has no solution, since $U$ becomes infinite for $u\rightarrow 0$. I ...

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risk aversion and convexity of indifference curve
2 votes

This seems to be specific to the CFA exam and is a badly formulated question. First, an indifference curve for some fixed utility level can be viewed as a function mapping $\sigma$ to $\mu$. At any ...

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Calculating optimal level of negative externality
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2 votes

Almost correct. Setting $W(h)=0$ is wrong (but inconsequential for the solutions). Checking the SOC for completeness should be included, but is somewhat obvious here. Correctness of 3. holds only ...

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Why does supply equal demand? Problem if large increase of price, decreases demand only by a bit
2 votes

"Sellers" as a whole indeed do not have a reason to decrease the price under these conditions. But sellers don't decide together collusively, acting like a monopoly seller. Instead, each of ...

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Rationalizabilitiy and Strict Dominance
2 votes

This depends on the kinds of beliefs players can have about their opponents’ play. If opponents' strategies can be correlated, then the strategies surviving IESDS are exactly the rationalizable ones. ...

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Term for partial resource use economics
2 votes

I think what you are looking for is known as overselling.

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Fair value that a risk averse individual would pay to enter a gamble
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2 votes

Yes. In general not. Let's say the individual has initial wealth $W$ and the gamble $g$ has payouts $0$ and $G$, each with probability $1/2$. As you say, the certainty equivalent $C$ of the gamble is ...

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Derive the Hicks demand function for $U(x_1,x_2) = x_1^{1/2}x_2^{1/3}$
2 votes

Let $f(U)=U^{6/5}$. This is a positive monotone transformation of $U$ on $\mathbb{R}_0^+$. So the preferences represented by $U$ are also represented by $V(x_1,x_2):=f(U(x_1,x_2))=x_1^{3/5}x_2^{2/5}$. ...

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How do you calculate the price of a good or service adjusted for scarcity?
2 votes

There is no such thing as "intrinsic value", at least not in modern microeconomics, and your question cannot be answered. Let's for simplicity imagine a market where all consumers have unit demand. ...

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How do I confirm that the constraint set wL + rK < Q is convex
2 votes

Given the three inequalities you wrote down, the constraint set is the intersection of Quadrant I with a half-space in the 2-dimensional plane . Both these sets are convex. The intersection of convex ...

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