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1500 questions
8
votes
4 answers
Correlation between salary level and housing prices in a town
Is there a measurable correlation in a town between salary level and housing prices?
Or, to put it differently: is it politically meaningful to drive up salaries by new investments if the result is unaffordable housing?
UPDATE: I do not want to edit…
Gergely
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How does a central bank create the money used for quantitative easing or lowering the value of their currency?
Up until last week, the Swiss central bank used Francs to buy Euros, in an effort to lower the value of the Franc; today the European central bank announced that it would use Euros to buy bonds in order to fight deflation.
I assume that the central…
Axel Boldt
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8
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2 answers
Doesn't the concept of marginal utility speak to a cardinal utility function?
When we differentiate the utility function with respect to some input $x_i$, we get a number that tells us how "fast" the utility function is changing at some point with respect to $x_i$. Doesn't that mean that when we compare marginal utilities, we…
Vasting
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8
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Why do some businesses choose scarcity as their business model instead of raising the price to meet the demand?
Here are some examples of what I'm talking about:
Mass events such as Burning Man, the Olympics, and the World Cup sell out tickets very quickly which forces fans to resort to scalping or using bots if they want to secure a spot
Theme parks like…
JonathanReez
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8
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utility maximization with nested Cobb–Douglas–CES preferences
I'm trying to understand the following paper: Hsieh & Ossa: A global view of productivity growth in China (2016). The pdf can be found here: https://faculty.chicagobooth.edu/chang-tai.hsieh/research/hsieh_ossa_jie.pdf
I struggle to understand the…
strizzle
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8
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2 answers
How to derive firm's cost function from production function?
I recently learned how to solve the following type of problem using the method of Lagrangian multipliers:
Given a consumer with utility function $u(x,y)$, wealth $w$, prices $p =(p_x,p_y)$, budget constraint $w = xp_x + yp_y$. Find the demand…
Stan Shunpike
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8
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1 answer
Perfect Substitution with a Continuum of goods?
Imagine I have a continuum of different goods indexed by $\omega \in [0,1]$. I have a household which consumes a quantity $C(\omega)$ of good $\omega$, and pays a price $P(\omega)$. The household has a budget equal to 1, and has a linear utility…
Asterix
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8
votes
4 answers
What are different ways of specifying utility and decision making?
This question is related to this question about the Machina paradox and about the expected utility model. In this question, I'd like to know a little more about various or even competing ways of specifying utility and decision making. It'd be nice…
jmbejara
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8
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Linear Homothetic Utility
A Homothetic Utility is where
$$
\forall x,y, \forall a \in \mathbb{R}_+: \ u(ax,ay)=au(x,y)
$$ (or its monotonic transformation).
A linear Homothetic utility is defined as $$
\forall x,y, \forall a \in \mathbb{R}_+: \ u(ax+b,ay+c)=au(x+b,y+c)…
High GPA
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8
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1 answer
Deriving the Modigliani--Miller Theorem
In the Wikipedia article on the Modigliani--Miller theorem, it states two propositions. (It gives the cases of with and without taxes. Here I'll just focus on the case without taxes.)
The first proposition is that the value of an unlevered firm is…
jmbejara
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8
votes
3 answers
Is the mainstream against agent based modelling?
I have heard it said that mainstream economists disapprove of agent based modelling and some of the most prestigious economics journals will not accept papers that employ them. Is this true? And if so, why?
Mick
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8
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1 answer
Credit Frictions as the source of Business Cycles
Many papers look at the impact of credit frictions onto business cycles, and they almost unambiguously find that credit frictions work as an amplification mechanism of other shocks.
For example, given a stronger negative total factor productivity…
FooBar
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8
votes
2 answers
What is virtual valuation?
I’m reading through a textbook in auction design when it describes a term, virtual valuation
$$\phi_i(v_i) = v_i - \frac{1 - F(v_i)}{f(v_i)}$$
where $f$ is the pdf of a bidders valuation and $F$ is the corresponding cdf.
It is described as the price…
Sentient
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8
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4 answers
Can $u(x) = \sqrt{x_1 x_2} + \sqrt{x_3 x_4}$ be solved by Kuhn–Tucker conditions?
Consider
$\max_{x_1, x_2, x_3, x_4} u(x) = \sqrt{x_1 x_2} + \sqrt{x_3 x_4}$
s.t. $\; p_1x_1 + p_2x_2 + p_3x_3 + p_4x_4 \le w$
I know we can solve the max problem through separately considering case(i): $x_1, x_2 > 0$ and $x_3 = x_4 = 0$; and case…
Yun
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8
votes
1 answer
Kőszegi - Rabin (2006) model problem
First of all, that's a homework question, and I will try to make it as useful to future readers as possible.
Problem
So, I was given a problem about the model described by Botond Kőszegi and Matthew Rabin in "A Model of Reference-Dependent…
ForceBru
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