texts:
I watched a video about how if America imports USD 1m worth of goods but only exports USD 600k worth of goods, there is a USD 400k debt to other countries if the other country allows this deficit.

US importers pay for the value of the goods they import. So why is there debt? Doesn't the US pay in USD the full value based on the transaction? Why would importing have anything to do with exporting, also why would anyone "exchange" goods for credit with somebody that already is USD 18 trillion in debt?


texts: Why in localbitcoins Spain, the selling price is the same as the buying price?

texts:
I use to buy bitcoins through localbitcoins.com in my country, Argentina, and I noticed that there is an important gap between the buying and the selling price. This gap is around 200 ARS (~20 EUR). This way, if you want to buy/sell fast, you choose one of the available buy/sell ads. Otherwise, if you can wait, you can post your own ad with more convenient prices. Even further, you can post both sell and buy ads and make profit of the price gap.

However, when I was in Spain, I noticed that there was no gap between both prices. Why is that? Are they just good willed people who just wants to exchange coins and don't care about profit? Or is because there is more people posting ads and because of their competition prices tends to balance? Or is because another reason I don't see? It happens the same in the whole EU? What happens in other countries?


texts: I'm looking for information about the basic commerce and trade. But all I've found is books about Free World Trade, Business Management and Economics. That is not what I'm looking for. I'm more interested in the concept of trade as it is, without specifics. For example, why people trade, what is the trade goal, on what circumstances you will gain from trade and when you are going to loose, how an opportunity for a trade is found etc.?


texts: Construct utility function for a risk-averse agent

texts: I am trying to construct utility function for an agent who can be risk-seeking or risk-averse. We have an agent $i$ who has an ideal point $x$ in a policy space $X = [0,1]$. There is a policy (option) given by $a \in X$. Can we construct the agent $i$'s utility function as a distance between his ideal point and $a$ as $u_i (a) = -(x - a)^\gamma$, where $\gamma > 0$ represents $i$'s attitude towards risk, such as $\gamma > 1$ means $i$ is risk-averse and $\gamma < 1$ means that $i$ is risk-seeking?


texts: Influential Theory in the Economics of Poverty

texts:
As far as I can tell, research on the economics of poverty is very empirically driven, and this is probably appropriate. What kind of economic theory has been developed though? I'd also be interested in theory of some influence too. To avoid wholly opinion-based answers, let's measure influence by how the theory directed other research or anti-poverty measures. As an example, I know papers have been written on the theory of poverty traps, but I'm not sure that concept is a contribution from theorists so much as some theorists developed a model for what might have already been an empirical observation. Are there any cases where concepts started in theory?

Links to papers are good, but the question is also about history to some extent, so it would be nice if you can show a trail of this paper influenced that paper or this policy.


texts: Is my solution to finding the Hicksian demand correct? Maximize $x_1^{1/2} + x_2^{1/2}$ subejct to the budget constraint

texts:
Maximize $x_1^{\frac{1}{2}} + x_2^{\frac{1}{2}}$ subejct to the budget constraint $p_1x_1+p_2x_2=m$
Setting up the Lagrange and finding the first-order conditions:
$L(x_1, x_2, \lambda)=x_1^{\frac{1}{2}} + x_2^{\frac{1}{2}}+\lambda(p_1x_1+p_2x_2-m)$
$\frac{\partial L}{\partial x_1}=\frac{1}{2}x_1^\frac{-1}{2}+\lambda p_1=0$
$\frac{\partial L}{\partial x_2}=\frac{1}{2}x_2^\frac{-1}{2}+\lambda p_2=0$
Equating these,
$2p_2x_1^\frac{-1}{2}=2p_1x_2^\frac{-1}{2}$
Solving for $x_1$ and $x_2$, we get
$x_1=\frac{p_2^2x_2}{p_1^2}$
$x_2=\frac{p_1^2x_1}{p_2^2}$
Substituting these into the budget constraint and solving to find the Hicksian demand ($x^*(p,m)$),
$p_1x_1+p_2x_2=m$
$\frac{p_2^2x_2}{p_1}+p_2x_2=m$
Solving for $x_2$,
$x_2(\frac{p_2^2}{p_1}+p_2)=m$
$x_2^*=\frac{m}{p_2}.\frac{p_2}{p_1+p_2}=\frac{m}{p_1+p_2}$
We do the same thing for $x_1$ and we get
$x_1^*=\frac{m}{p_1+p_2}$
We now have the Hickdian demands, substitute these into the objective function to get the indirect utility function and by duality, we know, $V(p,E(p,u))=u$,
$V(p,m)=(\frac{m}{p_1+p_2})^\frac{1}{2}+(\frac{m}{p_1+p_2})^\frac{1}{2}=u$
Solving this to find m,
$\frac{2m^\frac{1}{2}}{p_1^\frac{1}{2}+p_2^\frac12}=u$
$m^\frac{1}{2}=\frac{u}{2}(p_1^\frac{1}{2}+p_2^\frac{1}{2})$
$m=[\frac{u}{2}(p_1^\frac{1}{2}+p_2^\frac{1}{2})]^2$
Finally we also know by duality that $E(p,V(p,m))=m$, therefore
$E=[\frac{u}{2}(p_1^\frac{1}{2}+p_2^\frac{1}{2})]^2$
To find the Hicksian demand we use Shephards Lemma (take the partial derivative of the expenditure function)
$\frac{\partial E}{\partial p_i}=2.\frac{u}{2}(p_1^\frac{1}{2}+p_2^\frac{1}{2}).\frac{1}{2}.\frac{u}{2}.p_1^\frac{-1}{2}$
Simplifying this
$h_1^*=\frac{u^2}{4}.p_1^\frac{-1}{2}(p_1^\frac{1}{2}+p_2^\frac{1}{2})=\frac{u^2}{4}(p_1^\frac{-1}{4}+p_2^\frac{1}{2})$
Is this correct? (I've tried to make each of my steps really clear so this is easy to follow)


texts: Repeated games without a beginning and an end

texts:
I'm interested to know results on repeated games indexing each stage game by $\mathbb Z$ which contrast with those indexed by $\mathbb Z_+$.

It seems to me this could be quite different from repeated games with a starting stage, because there's no need to concern ourselves about whether or not a node could be obtained. Is it the case that we only need to consider stationary equilibrium?


texts:
I'm interested in calculating a repeat sales index like that of Case and Shiller (1987) or  Bailey, Muth and Nourse (1963). While I believe I have a handle on the econometrics, to test my implementation I need two things:

Data with repeat sales transactions (e.g. real estate or art)
A price index based on repeat sales calculated off of the data in (1)

Thus far, I've been able to find many examples of repeat sales indices (FHFA, CoreLogic Case–Shiller Indexes, Mei Moses art indices, Herengracht Index). Unfortunately, none with the underlying data used to construct the index.

I don't need to be able to fully recreate an existing index. I'm just looking for a set of data and index values to verify that my implementation is correct. In the event that the data (1) but not a calculated index (2) is available, that would be useful, but only if the data is clean and organized enough that I can focus primarily on the implementation rather than data issues.


texts: How can i find the best GARCH (p,q) in this serie?

texts:
Of course the first step would be to make the first difference of the series, because there's obviusly a unit root.
Can someone offer a solution to find the best Garch? I would be pleased to send the data. Thanks a lot!


texts: Unemployment: Human Capital Deterioration

texts:
I am looking for Macro-Labor models that include deterioration of human capital. The mechanism is simple: The longer you were unemployed, the more human capital you are losing.

However, this is backward-looking: Your human capital today depends on the length of unemployment - i.e. the periods $t-1$, $t-2$, .... Hence, keeping track of this issue in a macroeconomic model appears to be nontrivial, and I am wondering how and whether the literature was dealing with this fact so far.


texts: Aggregate efficient production and division of labour

texts:
How to resolve the following seeming contradiction? Mas-Colell, Whinston, Green p. 148 Prop. 5.E.1 says that the efficient aggregate (coordinated) production is just the sum of individually optimal productions. But Adam Smith argued that division of labour allows more efficient production than the sum of individual productions.

Of course Adam Smith's argument is informal, so it is not clear what assumptions differ from Mas-Colell. It could be that Smith envisioned production units with market power, externalities or some other inefficiency and the inefficiency somehow disappears with aggregation.


texts: Suppose A forwards a puzzle to B where if B solves the puzzle within 24 hours then it gets a payoff of M (M>0), if not then it gets nothing i.e. 0. Consider A locks the money with the bank for the 24hours and if B solves the puzzle it withdraws the money from the bank. If not bank refunds M to A after 24 hours. If B solves the puzzle within 10seconds (strike time 10), it gets payoff of M. If it solves at 23rd hour (strike time 23rd hr) it gets a payoff of M. Can there be someway to disincentivize delay in solving the puzzle so that A need not keep his money locked for long period of time? One strategy which I think is that ask B to lock a certain amount as well, so that it is forced to solve the puzzle quickly. How do I calculate the strike time at which B solves so that any delay beyond this will not be profitable?


texts: How can we get negative **real** interest rate?

texts:
According to Fisher's equation,

Real interest rate=Nominal interest rate - expected inflation rate

So, how can we get negative real interest rate? I'm in doubts. On one hand, purely from algebraic point of view it seems that expected inflation rate must be higher than nominal interest rate. BUT, I know that expectations of such high inflation would cause the nominal interest rate to adjust accordingly, to be higher than expected inflation rate. So such situation would appear to be impossible when inflation rate is expected.

On the other hand, replacing "expected" with "actual" turns the tables. If high inflation rate caught us by suprise it's totally possible for nominal interest rate to be lower than inflation. BUT Fisher's equation uses only expected inflation as its argument, not actual inflation. We don't have any right to supply Fisher's equation with unexpected actual inflation.


texts: Why, in supply and demand curves, does price go on the y-axis?

texts:
I know it doesn't actually matter which axis is which, but it seems less intuitive me. When I see a supply and/or demand graph, I always have to flip it in my head to feel like I really get what's going on.

It just seems like if you have one variable (price) on which two other variables (supply and demand) depend, then the single variable should be on the horizontal axis. So why isn't this the convention?


texts: Identification strategy for measuring impact of employee turnover on project quality

texts:
I am seeking help with identification strategy for figuring out causal direction in the following context:

There is a company where project managers (PM) rotate every 3-7 years across the country/globe. Naturally some PMs leave the company. I would like to measure the impact of PM rotation/turnover on project quality (as measured by time taken for completion ).

EDIT: I expect the PM rotation to be most likely independent of Project Quality. PM's must rotate between 3 to 7 years, with 7 being a hard limit with rare exceptions. PM's decisions are more likely to be driven by quality of life in a region, schooling, their own career aspirations, the type of opportunities that have opened up within or outside the organization. They cannot be fired (Govt) and don't get too much extra credit for a successful completion of a project and they don't get much flack if things are slow (unless it is a spectacular failure). Sometimes PMs move to a new region which is close to the old region so they are still able to hold on to their portfolio.

I would like help with identification strategy to distinguish between or tease out the separate impacts of the following scenarios:

Scenario 1: PM is rotated/changed --> Project quality suffers --> Project takes longer to complete.

Scenario 2: Project quality is good --> Project completes quickly --> PM didn't have the opportunity/time to leave

and

Scenario 3: Project quality is bad --> project takes forever --> PM rotates/leaves company due to natural career progression/rotation policy

I've spend the last many hours googling literature studying the impact of  project manager turnover on project quality but I haven't been able to find any good design. Would be grateful for any suggestions for identification.


texts: Understanding Tertiarization of the Economy

texts:
Trying to understand some of the core mechanics of tertiarization in developed economies.

According to the WorldBank,

  "As incomes continue to rise, people’s needs become less “material”
  and they begin to demand more services—in health, education,
  entertainment, and many other areas.

  Meanwhile, labor productivity in services does not grow as fast as it
  does in agriculture and industry because most service jobs cannot be
  filled by machines. This makes services more expensive relative to
  agricultural and industrial goods, further increasing the share of
  services in GDP."

Trying to understand in a bit more detail some of these claims though, such as:

Why does higher income imply less "material" demands, i.e. products specifically formatted as services rather than goods (couldn't rich people in theory just crave more expensive pharmaceutical drugs, textbooks, and gaming consoles, rather than associated healthcare, education, and entertainment services)?
Why can't most service jobs be filled by machines?  Does this just mean as technology stands today (vs. roombas, retail kiosks, self-driving cars, etc.)?  What if any inherent characteristics of services make them more difficult to automate?
Why does inefficient production make services more expensive, and this make them a higher percentage of GDP?  (Here I'm just trying to understand the economic principles involved)

Thanks!
Benji


texts: Graph of liquidation of trade versus price of commodity

texts:
Suppose I want to open a long position (that which increases in value as the commodity goes up in value) in some commodity whose price at the time of opening the trade is, say, $p$. The position is opened on margin, and the margin is 3 times of the collateral. That is, if I have $p$ dollars in my margin account I can open a position of size $3p$, and the liquidation price will be $p$. Suppose also that the collateral for the commodity I'm trading in the long position is also denominated in the said commodity, which means that as the commodity goes down, the liquidation price (when the position has to be closed) goes up.

Now, I want to obtain the graph of the liquidation price change.

Let $y$ be the liquidation price and $x$ be the price of the commodity. Suppose I have 1 unit of the commodity and I open a long position for 1 unit. I think that in this case I come up with the following differential equation:

$$3 \frac{dy}{dx}=-x, y(p) = \frac{p}{3},$$

which doesn't give me the correct graph.

Can someone please help me with this? I'm missing some important point here and thus the DE I'm coming up with is not correct.


texts: performance as utility function / price?

texts:
I am trying to define a 'model' for the perceived performance of a product based on this definition:

  Presumably, customers take both price and quality
  into account as they form an overall evaluation about
  a product's performance. To avoid a confounding of
  the two, each was measured in light of the other—
  perceived performance is thus measured by price (given
  quality) and quality (given price). (Fornell, 1992)

I thought that a utility function might be a good way to describe the quality of a product, so ended up with:

$$P(x) = \frac{u(x)}{c}$$

Where the perceived performance P of a product x is equal to its utility function u(x) divided by its total price c.
Is this more or less ok? Or should I include the price variable in a different way, such as e.g.:

$$ P(x) = u(x,c)$$

...or even simpler

$$ P(x) = u(x)$$

As cost might be assumed to be part of the trade-offs of the function? Any ideas or help with the notation or function would be really appreciated.


texts: Secular Stagnation: A Plain-English Explanation

texts:
Put aside the mathematics and jargon for a couple minutes. If you had to explain the concept of secular stagnation to an (intelligent) person with no economics background, how would you go about doing so?

If you want to use terms like "zero lower bound" or "tight money" ... explain them thoroughly!


texts: Modern theory of integrability of demand?

texts:
I am aware of Hurwickz Uzawa work in integability, neatly summarized by Border http://people.hss.caltech.edu/~kcb/Notes/Demand4-Integrability.pdf
I am wondering if there is any modern treatment of the subject, for instance a version in Sobolev spaces, or taking advantage of new tools in PDE from Lie Algebra. In particular, I am interested in work that extends the integrability problem to non-linear budget constraints.


texts:
Why would the powers to be drop the price of petro while their currency's value declines?

The Thai Baht has been dropping significantly in value the past few weeks at the same time the price per liter has been dropping.

Why would that be?


texts: ARIMA modelling and Economic interpretation

texts:
ARIMA models, from what I know, are atheoretical models in the sense that they don't provide us with meaningful economic interpretation of a process.
However in population forecasting, can ARIMA models be interpreted in a meaningful way?
i.e.

can $AR(1)$ process can be interpreted as:

population growth in period $t$ is a function of population in period $t-1$

can $MA(1)$ process can be interpreted as:

population in period $t$ is a function of a policy or ongoing event (like immigration or emigration) which has occured in $t-1$.


texts: What could cause the spike in the Venezuelan unofficial currency exchange?

texts:
In November last year the unofficial currency exchange rate in Venezuela skyrocketed. It was only one month later that the government was able to slow the increase rate to “normal” values. The government alleged that some mafias where smuggling the Venezuelan money out of the country across the border, which doesn’t even make sense, since the biggest banknote in Venezuela was worth only about 5 cents of a dollar at most in the unofficial currency exchange market.

This is the unofficial exchange rate tracked by a third party web site:


texts: LTV predicts that fiat currency, which requires zero labor to produce, should have zero value. Empirically, fiat currency does not have zero value. How do Marxists account for this. The to responses I have gotten so far are that labor does go into printing(though very little in comparison to the price) and that fiat currency is merely a token of money. In which case what is the money in this regard and how can any of this be empirically tested?


texts: Why monthly present in on line monthly payment calculator calculates as annual percent divided by 12?

texts: Why monthly present in on line monthly payment calculator calculated as annual percent divided by 12? I think it's wrong, it should be exponential. For instance annual percent 4%. To calculate monthly percent we need to 1.04^(1/12). So monthly percent should be 0.327%, but if we use approach on on line calculators it is going to be 0.333.


texts:
How exactly does Piketty et al's method (as in his book) for computing the interest rate over time and countries work?

I know that they use reported tax returns, and that some criticize them for also using increase in housing values even if households didn't benefit from that through selling them (only an increase in book value).

So how does their method work in detail: Infer capital stock $k_t$ at $t$ through capital tax reports in $t$, look at interest accrued in $t+1$ through capital tax reports $Rk_{t+1}$, and then compute $r$ as $Rk_{t+1}/k_t$?

And what are potential advantages and disadvantages of this methodology compared to the traditional way?


texts:
UBI - universal basic income (everyone gets a set amount per period)

  If you've heard anything about me, it's that there's an Asian man
  running for president that wants to give every American $1000 dollars
  a month

Andrew Yang 2020 Candidate (#YangGang)

But would this really make a difference?

Alaska is already experimenting with UBI, and it's working great! Every year, Alaskans get around $1000, and this has actually contributed to people working more often, and businesses opening up more jobs. Whatever the case, the important thing is that UBI is a success in Alaska, but why not the entirety of America? Two reasons.

America's population is 450 times that of Alaska
There are just too many difference factors (opposing parties, different state laws, etc.)

So when we give American's $1000 every month, what will this actually achieve? Well first, paying it won't be a problem. Yang has clearly laid out a very specific plan on where he would get all this money, but the real question is how would people react?

I have a few ideas on this, and I'm not sure if it's correct or not.

1) More immigration? People see UBI as a benefit for living in the States

2) Bad environment? Lower class people will buy more drugs, alcohol, and stuff like that, creating a negative atmosphere or a bad stereotype in America

3) Help renew the economy? More money is now into circulation through shops and businesses, creating a more stable and expanding economy***

Recap. What I think will happen is when UBI is put into place, we should see a lot of immigration to America. In addition, some low class people will buy more abusive substances, therefore creating a bad rep for the country. But the positive side is that America's economy can now renew itself since people are buying more goods, therefore circulating more money into the system. Am I right? Probably not. What am I missing here?

Any advice would be highly helpful. Thanks!

***The 4th industrial revolution is here. Robots are replacing millions of jobs across America, causing people to not have enough money. When people don't have enough money, they reduce their spendings. On what exactly? Groceries, clothes, fast food, etc. This causes a chain reaction of events that leads to the economy becoming dry since no one is spending their money. Am I correct here?


texts: Demand functions in merger simulation models

texts:
Currently competition authorities usually decide whether to approve a merger or not based on the total revenues or capacities of the merging firms and some rule of thumbs. A reason for this is that they do not always have a stronger mandate because of the legal background.
Merger simulation models promise a more analytical policy approach. For a good survey see Budsinki & Ruhmer (2010).

It is my understanding that the kind of data needed to estimate the demand function of a market, or usually demand functions in the case of differentiated products, is not publicly available. Yet rival companies frequently have similar data which they use to estimate their market share.

How would one go about legally acquiring such data?
Are there any ways with which to estimate cross elasticities without said data?


texts: National level or aggregate level data and firm-level data are self explanatory. I have seen certain papers on productivity analysis as well as other topics which refer to "establishment-level" data. Can someone please explain what is meant by this term?


texts: Pricing Strategy for Product that Ships Across a Country

texts:
Not sure if this is the right place for this question.

Assume I produce a grocery item that I want to sell across the country. If I sell my product to a grocery nearby, my shipping cost will be less than if I were to sell the product to a grocery in some remote part of the country.

Assume further that the suggested retail price of this product should be about the same across the country, or it won't sell.

What's the proper way to handle a pricing strategy in this situation?

I sell the product at the same price to all groceries, but they have
to pay for shipping. Then it's up to individual groceries how to
price the product. If they were to follow the suggested retail
price, groceries near the manufacturing plant would make more money
than groceries further away from the manufacturing plant due to
their higher cost of shipping.
I sell the product at the same price to all groceries and include
the average shipping cost in my selling price. So, nearby grocery
store would pay the same as remote grocery store. The risk would be
if suddenly there is an abundance of orders from remote grocery
stores -- and the included average shipping cost doesn't cover my
shipping expenses.
I sell the product at the same price to all groceries and include
the highest possible shipping cost in my selling price. Little risk
to me and great for remote groceries, but nearby groceries are
penalized.

Of course, the above options are an over simplification. For example, with regards to #3 - it's possible a competitor near my manufacturer could product a similar product at the same price point, then start selling to nearby groceries and only charge the shipping cost to that nearby grocery. Their product would then be the cheaper option and I would lose a customer.

What's a good strategy for the above scenario? What strategies did I miss?


texts: If a business charges more for a product than the cost to make it, how is our economy not inevitably doomed for debt?

texts:
The analogy would be stirring water in a bucket; without adding more water to the bucket, there is no gain...

Obviously the various resources to create say an iPod came from different countries... but this general concept of x = 4x therefore the company made 3x (as an over simplification) so where did the 3x come from? From people yes, but if it's always subtracting then how do we get to positive?


texts:
Let's consider a relationship between $ y $ and $ x $, $ y = a x^b $. Taking log on both sides, we have $$ \log y = \log a + b \log x $$

Now, my textbook, Nicholson and Snyder's Basic Principles and Extensions derives the relationship between elasticity and the logarithm of the two variables thus:

$$ \eta = b = \frac{ d \log y}{d \log x} $$

Now, I understand that $ d \log y = \frac 1y dy $ and $ d \log x = \frac 1x \ dx $. So I understand why we can write $ \eta = \frac {d \log y}{d \log x} $. What I don't understand is: why does $ b $, which is the power on the variable $ x $, equal $ \eta $?

Here's a snapshot from the book:


texts: How to solve for the potential of a cournot duopoly problem?

texts:
So i have this question

And i have no clue on how to get to verifying that that function on the answer sheet is a potential Cournot game.

I started answering the question like this, but then i got lost when calculating the MC since i only have c as a unit cost and not total cost.

But probably i was answering the question in a wrong way.

Please tell me if i am.

Could you show me the steps on how to get to the function which is a potential for the Cournot game ?

I have learning disabilities and I have difficulties grasping on to hard concepts like these. If you could show me clear and simple steps to get to the answer it would be greatly appreciated ! Thanks!


texts:
As a PhD student I made a few connections over the course of time with professors from around Europe (had brief chats with them at conferences, invited them at conferences, etc..). Some explicitly said, send me your paper once it is ready, other haven't.

Is it common in Economics to send your paper, without an explicit invitation, asking for feedback (assuming the speaker to be in the relevant field)? Or should one wait or look for a chance to present it in a seminar?


texts: Can you prove, and with what assumptions, that a market will allocate some minimum amount of basic resources to every worker?

texts:
I'm looking for a summary/less technical answer, as I'm not very well versed in the details of economic theory. I'm curious if there is some way to show that under some circumstances in a market economy that every worker (assuming they work some minimum hours, are not disabled, maybe have a basic high school education, etc) who participates in the economy will be able to procure some amount of basic resources (i.e. food, shelter, clothing).
More directly: In a market economy, will everyone who participates be able to sustain themselves, or can even a fully participatory, albeit poorly educated and unskilled, worker become unable to sustain themselves, and this is just an accepted fact of economic theory?


texts: What is the name for this turn-based property trading game?

texts:
Does anyone know what the following allocation strategy is called?

Problem:

How to allocate N rooms to N roommates? Example: allocate 4 rooms
(1,2,3,4) amongst 4 roommates (A,B,C,D) total rent of $4000.

Allocation Game:

Each roommate assigned a starting random room; all rooms are priced
    at an equal \$1000.
Roommate A's turn: has the option to swap rooms with someone.  In
the swap: the traded-for room increases its price to \$1050, the
traded-away room decreases its price to \$950.
Roommate B's turn: has the option to swap rooms with someone. Every
time a room is traded away its price decreases \$50, similarly the
traded-for room increases by \$50.
Turns continue indefinitely until 4 turns pass with no roommate
wanting to swap.

Result:

Each room is priced at an equilibrium where no further trading is desired.

Does this form of iterative trading game have a name?


texts:
I'm doing a simple exercise from my textbook: suppose the revenue function is $R(p)=p^{1-\epsilon}$ with $\epsilon > 0$. Suppose the cost function is convex. Show that the profit function is quasi-concave if $\epsilon > 1$.

My attempt: Let the demand function then be $q(p)=p^{-\epsilon}$ and the cost function some $c(q(p))$.

The first-order condition is
$(1-\epsilon)p^{-\epsilon}-c'(q(p))q'(p)$ and the second order condition $-\epsilon(1-\epsilon)p^{-\epsilon-1}-c''(q(p))q'(p)^2-c'(q(p))q''(p)$.

The second term $-c''(q(p))q'(p)^2$ and third terms $-c'(q(p))q''(p)$ are negative under convexity of the cost function. Hence the second order condition is unambiguously negative if the first term is negative. But that happens for $\epsilon<1$, the opposite as conjectured.


texts:
In The Keynesian economy,
I have the following model

Here, the production function $F(N,K) = Y/K = A(N/K)^{1.10}$ and by the labor demand function $F_N(K,N)= N/K= b_0(w/p)^{b_1}$.
right?
That is, what is the F(K,N)=? and $F_N(N,K)=?$
Here , I mean that $F_N(N,K)$ is marginal product of labor.


texts:
How do you calculate the intrinsic value or fair value of real estate?
I mean how do you determine that the house/commercial estate is undervalued or overvalued?


texts: What is the impact on the money supply of a reduction in the required reserve ratio?

texts:
In April 2011, the money supply was estimated to be 52 million hurls.
At the same time, bank reserves were 6.24 million hurls and the
reserve requirement was 12 percent. The banking industry, being
“loaned up,” lobbied the Congress to cut the reserve ratio. The
Congress yielded and cut required reserves to 10 percent. What is
the impact on the money supply?

From my calculation, a decrease in the required reserve ratio would mean that the reserves of 6.24 million will support 62.4 million hurl. Does this means that the money supply increases by 10.4 million?


texts: Verification of logic behind instrumental variable approach

texts:
I would like to know whether the following reasoning regarding the instrumental variable approach is acceptable. I understand there are case-by-case factors that affect the applicability of instruments that I am not discussing below. But I just want to know if the general logic is correct or if I am missing something
Let's say that we are studying the effect of some state-level policy on some state-level outcome. We could run a regression with the policy variable as a covariate, but it is possible that there is reverse causality. Let's say that one of the factors driving the reverse causality is that there are special interests that would benefit from the policy, and states with higher values for the outcome variable have stronger special interests that lobby policymakers to implement it. If campaign contributions only have an indirect causal influence on the dependent variable through the policy, then it would satisfy the exclusion restriction for instruments.

However, if there are multiple policies that benefit the special interests, it is likely that the special interests lobby for the other policies as well. If these policies were exogenous, then we would just need to include these other policies in the second-stage regression. But if the special interests are lobbying for the second policy, the policy would not be exogenous; there is reverse causality, as with the first policy. Thus, we need to treat the second policy as an endogenous variable as well.

Therefore, we should try to find all the policies that could influence the outcome variable and treat them as endogenous variables. To do so, we would need as many instruments as there are endogenous variables. Assuming that the policies are the only endogenous variables, the instruments have no direct causal impact on the dependent variable, and the instruments are not correlated with the error in the second-stage regression, we should be able to adequately control for endogeneity in the estimation of the second-stage regression.


texts: Is there a collection of Economics PhD prelims questions?

texts: Out of curiosity, do you know if there is a collection of Economics PhD prelims questions?


texts:
5 people are eyewitnesses to a criminal incident. Each one of them wants the police to get informed but they prefer a third person to give the information.
Suppose k is one of the 5 people.
If the police receive information from the person l≠k, the utility of k will be equal with v.
If the police receive information from the person k, its utility will be equal with v-c, where v>c.
If the police don’t receive information, the utility of k will be 0.
How many Nash equilibria are there in the above game?


texts: Neoclassical Economic Growth Model Shadow Price for Discrete vs Continuous Time

texts:
I recently learned about the neoclassical growth model in both discrete and continuous time. The intuitive meaning of the shadow price for both cases is that it represents the value of one additional unit of capital. However, in discrete time, this value is the discounted value of the marginal utility at time t consumption level. Whereas, in continuous time, the shadow price is the discounted value of marginal utility at time 0 consumption level. I was wondering why is there such a difference when changing from discrete to continuous time.

Moreover, I feel that the discrete-time seems more meaningful as the value of capital at time t should depend on the marginal utility at time t and not at time 0.

Thank you!

Continuous time case

Discrete time case


texts: Why are we comparing the ratios of MPL to price of labor and MPK to price of capital not ratios of MPL and MPK to price of labor and price of capital

texts:
Question:

A firm produces chairs using labor and capital. The price of labor is \$50 dollar per unit, and the price of capital is $100 per unit. At current output, the marginal product of labor is 10 chairs, and the marginal product of capital is 15 chairs. To reduce the total cost of producing the current quantity of chairs, how should the firm change its spending on labor and capital?

Answer:

Increase labor; Decrease capital. In order to reduce the total cost of producing the current quantity of chairs, one of the inputs to production must increase and the other must decrease. If neither changed, the cost would not be reduced. If one increased or decreased and the other did not change, the firm wouldn’t be producing the current quantity of chairs – it would be producing more or less, respectively. While the marginal product of labor (MPL = 10) is less than the marginal product of capital (MPK = 15), the RATIO of the MPL to the price of labor (10 / 50 = 0.2) is greater than the RATIO of the MPK to the price of capital (15 / 100 = 0.15). To reduce the total cost, the firm should increase spending on labor, which increases output by 0.2 chairs for every dollar spent, and decrease spending on capital, which only increases output by 0.15 chairs for every dollar spent.


texts: What are the economic ramifications of rent control?

texts:
What effect do they have on renters?  Landlords? Are there examples of rent control working, improving living conditions for renters?

I.e. What are the main arguments for/against rent control (purely economic, not emotional or moral).


texts: Macroeconomics differences of 2008 financial crisis and 2020 economic crisis

texts: How is 2020 financial crisis different from 2008 financial crisis? For example, why have stock market indices (e.g. S&P500, NASDAQ-100) recovered so quickly (about 3 months instead of longer than a year during 2008 financial crisis) despite the fact that unemployment rate is higher now and there were no lockdown back then?


texts: Foundational equations or concepts of Finance

texts:
For the other sciences it´s easy to point to the most important equations, inequalities, propositions or concepts that ground the discipline. If I want to explain Finance to a physicist say, what are considered to be the most fundamental, foundational or important equations, inequalities, principles, propositions (theorems, lemmas, etc) or concepts that underly the subject which I should introduce and attempt to explain?

Above paraphrased from: Fundamental equations in economics

My guess would be the fundamental theorem of asset pricing or some Pricing Principle, but that's coming from a mathematical finance background. Would people coming from a corporate or personal finance (or whatever else finance is out there) background say something similar?


texts: Curvature of Cost and Production Function

texts:
I have been trying to understand the duality theory between cost and production function. Please let me know if my following statement is correct;

If the cost function $C(w,q)$ is convex in $q$, the dual production function $f(x)$ that we can derive will be quasi-concave and it will be unique. However if the cost function is not convex, then the dual production function that we can derive will be quasi-concave but there are more than one such production functions that could have given rise to the cost function.


texts: Can the Machina Paradox be solved by expanding the choice set?

texts:
In another question, the Machina paradox is mentioned as a possible counterexample to the expected utility model:

  Adding to the list of paradoxes, consider Machina's paradox. It is described in Mas-Colell, Whinston and Green's Microeconomic Theory.

  A person prefers a trip to Paris to watching a television program about Paris to nothing.

  Gamble 1: Win a trip to Paris 99% of the time, the television program 1% of the time.

  Gamble 2: Win a trip to Paris 99% of the time, nothing 1% of the time.

  It's reasonable to suppose that given the preferences over items, the second gamble might be preferred to the first. Someone who lost the trip to Paris might be so disappointed that they wouldn't be able to stand watching a program about how great it is.

However, it seems to me that this can be resolved by expanding the decision space to account for possibly state-dependent utility. For example, consider a model with two time periods,
$t=0$ and $t=1$. The first represents before the resolution of the uncertainty surrounding winning the trip to Paris. The second time period is after the resolution of the gamble. Now, model this potential outcomes as follows:
$$
\begin{align}
A &= \{P, \emptyset\} \\
B &= \{P^C, T\} \\
C &= \{P^C, N\},
\end{align}
$$
where $A$ corresponds to the outcome where you win the trip to Paris (and then it doesn't matter what you do after that), $B$ is the outcome where you don't win the trip and you watch TV afterwards, and $C$ is the case where you don't win and you do nothing afterwards. Then, although you might like Paris over TV over nothing in one time period (...?), when considered together over time (because of some sort of complementarities) you prefer $A$ over $B$ over $C$.

My question is this. Is this a reasonable way to resolve this paradox? What are ways in which people have tried to resolve this?


texts: What is it called when there is no personal increase of wealth but GDP increases because of mutual sales?

texts:
In a hypothetical situation, every person produces some product but instead of consuming it sells it to another person.
This situation would increase the GDP whereas self-consumption doesn't.
Say, person x cleans person y's car and vice versa, and both pays each other some amount Z. Or maybe person x cleans y's car, y cleans a's car, a cleans b's...and so on. Or let's say x sells eggs to y, y sells to x.
Either way, the persons involved got some product or service and is left with no extra money.
This situations increased the GDP, whereas self-consumption doesn't. Is it a flaw? If so, what's it called?


texts: Does US gold reserves includes other counties' gold reserves?

texts:
http://www.tradingeconomics.com/country-list/gold-reserves

For example, some of German's gold reserves are stored in US central bank as explained in https://en.wikipedia.org/wiki/Gold_repatriation:

  The gold in the U.S. was earned by West Germany through trade surpluses in the 1950s and 1960s and never moved it out of the United States due to fear of invasion by the Soviet Union.

In the case, does the 8133 tonnes gold reserves in US include the gold liability to other countries?


texts: Indirect utility from expenditure function

texts:
I have the expenditure function: $$e(p,u)=\left(p_1^{\rho/{\rho-1}}+p_2^{\rho/{\rho-1}}\right)^{{\rho-1}/\rho}u$$
where $u$ is the utility, $p_1,p_2$ prices and $\rho$ a parameter. How do I derive the indirect utility function?


texts:
This question is related to extremum estimators. I am looking to propose an estimator that I think may be a Tobit estimator, but I am unsure. The question is as follows:

Let $z$ be a random variable with a strictly increasing CDF $F( \dot ) $ everywhere on its support. The median of $Z$, $\gamma$ is defined as:

$ \int _{-\infty, \gamma} dF(z) > \frac{1}{2}$ ; $ \int _{\gamma, \infty} dF(z) > \frac{1}{2}$

It is known that $\gamma$ minimizes an expected absolute deviatin criterion:
 $\gamma = argmin_e E(|Z-e| - |Z|)$.

We consider a model $Y=max\{c, f(X; \theta)+\epsilon\}$ where c is a known constant and the conditional median of $\epsilon$ given  $X$ is 0. Suppose we have an i.i.d sample $\{X_i, Y_i\}$, that is generated by this model.

1) Propose an extremum estimator for $\theta$.

Here, I was thinking that a Tobit model would be appropriate since the model is truncated by the constant $c$.

2) Show the estimator you proposed is consistent.


texts:
If a GDP deflator is continually greater than 100%, does that mean inflation is still occuring?

If the difference in deflators from year to year is continually greater than 1%, does that mean inflation is occuring at a greater and greater rate?


texts:
I am interested in knowing more about the valuation of a currency, and how the currency is determined to be 'overvalued' or indeed 'undervalued' in a floating/flexible exchange rate system.

More specifically, in a flexible exchange rate system: what is the currency over/undervalued against, and what role does inflation play in the definition?

Best,

Andrew


texts:
I'm looking for feedback and critiques of an idea. Universal basic income is an increasingly popular idea, but most agree that it would be terrifically expensive. Assuming that the goal of UBI is to provide everyone with enough liquidity to participate in the economy, would a universal basic loan work just as well without costing as much on paper?

Specifically, the government would make available a no strings attached personal loan to every citizen, to be paid back at some future date (e.g. 12 months in the future), with the interest rate set according to whatever monetary policy makes sense at the time. The interest rate may also carry with the size of the loan, the term, previous good repayments etc.

Optional follow up: could this also replace the tax system, in that the interest rate could be set high enough to be used as the money drain in the economy instead of income tax?


texts: In which cases prior to the Greek crisis did the IMF admit mistakes in it's economic policies?

texts: Has the IMF ever admitted mistakes on it's economic policies prior to the Greek crisis?


texts: How are strutural deficits measured by the EU comission and by the IMF?

texts:
I was watching a show on economics, and the guests stated that the way structural deficits measured by the IMF and European Comission usually give antagonic values, and worse, the corrections made to previous estimations may in fact indicate that previous advised policy was in fact wrong and in the opposite sense.

Well, I'm looking for some references that show how both institutions measure structural deficits, and why are they problematic.

Any help would be appreciated.


texts: What empirical evidence is there of distortions when capital gains taxes are introduced or raised?

texts: I have heard that introducing capital gains taxes would create distortions in investments, and that the optimal tax rate for capital gains is actually 0. My question is what observed evidence is there of the distortions or "side-effects" that have been created do to the introduction of or the increase in capital gains taxes? Is there also empirical evidence of the opposite, i.e. an increase in investments (and any other "desirable" side-effects) due to the decrease or elimination of the capital gains tax?


texts: How do we find a competitive equilibrium price when 2 firms operate with different marginal costs?

texts:
Consider a homogenous goods market with the demand
function Q = 30 − P, where Q and P denote quantity and price respectively.
There are two firms playing a price game in the following manner: firm 1
quotes a price and then firm 2 chooses a price. When they charge the same
price they share the market equally and otherwise the market demand goes
to the firm charging lower price. Firm 1 has a capacity constraint at the
output level 5 units such that upto five units the marginal cost of production
is Rs 3 per unit of output, however beyond 5 units it cannot produce any
output. Firm 2 does not have any capacity constraint, it can produce any
amount with the marginal cost Rs 6. What would be the equilibrium price
in the market?

I'm confused, I think we have to put demand=supply firstly, then if the equilibrium price is 6 (the answer), firm 1 will produce 5 goods but firm 2 has no incentive to produce anything. Will the price not be a little greater than 6?


texts: Relationship between forward rate, future spot rate, and liquidity preference

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I'm getting confused over the relationship between forward rates, spot rates, and liquidity preference.  I know that liquidity preference theory (i.e. that investors prefer shorter term investments because they are more liquid) states that the forward rate is greater than the future spot rate.  However, I am confused on what exactly the forward rate and future spot rate are.  My understanding is that:

The forward rate ($f_2$) is the hypothetical rate you would need to eliminate an arbitrage opportunity in the example below:

$(1 + r_1)(1 + f_2)$ = $(1 + r_2)^2$

The spot rate is the the expected yield on a zero-coupon bond.  But how does this play into the example above?

Moreover- just to make sure- am I correct in that longer maturity -> greater interest rate risk (because of inflation / liquidity pref)?

Thanks for your help.


texts:
This question is from Harvard seminar problem set (Q-3 part b)  https://www.studocu.com/en-us/document/harvard-university/economics/mandatory-assignments/econ2020a-14-ps01-please-give-as-much-additional-information-as-possible/3513583/view
Show that it holds continuous, monotonic, LNS and transversality.
$$|x_1-x_2 -y_1-y_2| \le 1$$ if x~y
I can just show transversality condition
first, for x~y $$-1\le x_1-x_2-y_1-y_2\le 1 $$
for y~z $$-1\le y_1-y_2-z_1-z_2\le 1 $$
When I sum these in equalities, I will obtain
$$-2\le x_1-x_2-z_1-z_2\le 2 $$
So, At the same time, I can say that
$$-1\le x_1-x_2-z_1-z_2\le 1$$
This implies that x~z. Thus, transversality holds. But I cannot prove for others even though I know their definitions. Please help me to do this.


texts: Free source of large amounts of financial data

texts:
I am looking for a free source of large amounts of long term financial data on stocks, exchange rates, government bond rates, etc.

I know there is Thomson Reuters, but this requires a costly subscription.

The data doesn't have to be super up-to-date.


texts:
I've been reviewing some of my microeconomics theory and have been reading up on Roy's Identity. Recall that Roy's identity is defined  as:
$$x^*_{i}(\text{p},m)=-\frac{\frac{\partial v}{\partial p_{i}}}{\frac{\partial v}{\partial m}}$$

being that the indirect utility function is just the utility function evaluated at the appropriate Marshallian demands, this result is not surprising.

What is an important application of roy's identity that I wouldn't know from just solving for marshallian demands?


texts: In period 1 the consumer of type $\theta$ selects an option contract consisting of an up-front fee, $B>0$, and exercise price, $\bar{R}$. The consumer pays $B$ at the end of the first period. In period 2, he realises his valuation, $\theta$, distributed on $[0,1]$ by CDF $G(\theta)$ with density $g>0$. His expected payoff, from choosing contract $(B, \bar{R})$, should thus be $-B+\int_{\bar{R}}^{1}(\theta-\bar{R})g(\theta)d(\theta).$ However, in the paper I am told that it is instead: $-B+\int_{\bar{R}}^{1}(1-G(\theta))d\theta.$ Are these two expressions equivalent? What does it mean to integrate a CDF in this fashion? Thank you.


texts: Current status and trends in the choice of software for teaching econometrics

texts:
My institution is updating some of its bachelor and master study programs in economics and business administration, and the question of choice of software for econometrics and related classes has come up. I wonder what the leading institutions are using and where the field is headed. Hence my questions:

What software is currently most used for teaching econometrics and related subjects in leading study programs of economics (bachelor and master, or undergraduate and graduate)?
What software is currently most used for teaching econometrics and related subjects in leading study programs of business administration (bachelor and master, or undergraduate and graduate)?
Are there any pronounced tendencies of an ongoing switch to another software or a switch to take place in the near future (say, during 2020-2025)?

The question is intended to be objective. It does not ask for opinions on your favorite software (though I would not mind hearing some core points on that as long as they contribute to choosing an appropriate software for our study programs).
Edit (after the bounty was added): Please try to make the answer specific by including

the year to which your knowledge refers;
study program: economics, business, ...;
type of institution/deparment: university vs. something else, economics department vs. business school vs. ...;
tier: R1, R2 etc. or similar
country;
level: undergraduate/graduate or bachelor/master/Ph.D.;
course: econometrics or some other (in case you may wish to share your experience in a related but different course).


texts: Measure of Public Transportation Efficiency (Consumer side)

texts: I'm looking for data on public transportation efficiency for consumers by city or county. In some places you can get across town in under 20min and in other places it takes 2hrs and this likely has important economic consequences. This seems like it would be a 1-day Google developer project and something one person could do with a Google maps/directions API and a good computer, so I'm wondering if its out there already: a measure of time to distance traveled on public transit within each US city or county.


texts:
I have been tasked with teaching some students macroeconomics, and will shortly need to introduce them to the concept of 'aggregate demand'. Usually, this is defined by the following sort of equation:

$AD$ = $C + I + G + X - M$

where the symbols have the usual interpretations.

My question is whether aggregate demand is supposed to refer to the quantity that is demanded or rather the value of total demand.

Both options would seem to present difficulties:

On the one hand, if we say that aggregate demand is a quantity, one needs to ask 'of what?' Naturally, if there were just one good in the economy, answering this would be easy. But in reality, there are many different goods. Are we supposed to just add up the quantities demanded of all these different goods (e.g. if people demand 5 laptops, 3 apples and nothing else, aggregate demand is 8)?

On the other hand, we might say that aggregate demand is the value of total demand, i.e. $p_{1}q_{1} + ... + p_{n}q_{n}$ where $p_{i}$ and $q_{i}$ are the quantity demanded and price of good $i$. That seems a bit more meaningful, but then it is far from intuitive that aggregate demand falls when the 'overall price level' (whatever that is) rises. For one might have thought that if prices rise, the value of total demand would (sometimes) rise, just as a firm's total revenue can increase when the price increases (if demand is inelastic).

My apologies if the answer is obvious; I am simply not very familiar with macroeconomics.


texts: VAR inversion - looking for a good resource

texts:
I am having trouble with something that should be pretty basic.

I need to invert a VAR (vector autoregression). Everything I have read just brushes past the actual inversion process, taking for granted that I already know how to invert a VAR. Does anyone know a good source (book, journal article, website) that walks through inverting? I've looked at Diebold's Elements of Forecasting and Enders' Applied Economic Times Series, as well as other sources with good coverage of VARs, but I can't find a good explanation of the basics of working with VARs.

Thanks!


texts: What justifies the authority of a bank to create money when they make loans?

texts:
This is somewhat of a political or philosophical question.

As explained by the Bank of England and elsewhere, the majority of broad money is created by credit to banks' accounts when they make loans. "Loans create deposits, not the other way around."

What is it that gives the banks the power to do this? In other words, why can't I do the same thing? With what I currently know, it seems unjustified.
In attempting to justify it, I'm wondering if maybe there is there some kind of cost to creating or debt created by these deposits and this somehow justifies their ability to create them. Do they owe something to a central bank or the state upon doing it?


texts: Accounting profit in macroeconomics as compared to microeconomics

texts:
In Macroeconomics (2019) on p.103, it is argued that the reason there exists profit in an economy is that most firms own rather than rent capital. Thus:

But, Microeconomics assumes a different definition of economic profit. It is the surplus after deducing opportunity cost and implicit costs.
Why is there a difference in the definition of accounting profit between the fields of Macroeconomics and Microeconomics?


texts: Does it make sense to talk about Bitcoin 'inflation' when little to no goods and services are listed in Bitcoin currency?

texts:
I think of inflation as a generalized increase in the price levels of a basket of goods and services.
I should add that my understanding presumes that inflation should be measured in the same currency as that in which the goods and services that make up the basket are listed and sold in the market, e.g. when measuring inflation in France, the basket price is in Euros not in US dollars or rupees.
Measuring inflation for a currency in which few if any goods are listed in, such as Bitcoin, seems erroneous as there is not Bitcoin-denominated basket anywhere in the world.
Am I onto something here?


texts: What's the name for this type of non zero sum game?

texts:
Many times you hear Economics is a "non zero sum game" implying that anything that is earnt by one person or group isnt lost by other. This might not be the definition of non zero sum game, but that's how it is used many times. What I believe it happens it's part of what is earnt by a person or group is lost by other and other part isnt.

In the other hand, you have "zero sum game", where everything earnt by someone is lost by other.

Is there a name for a game where part of what a person or group earns is part of what other person or group loses, and other part of what this first person or group earns isnt part of what other person or group loses?


texts: Determining subgame perfect Nash equilibriums

texts:
Question
Three houses share exclusive access to a beach, but it is dirty due to trash washed ashore. A beach clean-up exercise costs $100$, but has a value of $200$ to each household. A clean-up company offers to take on the exercise and suggests that contributions be made sequentially. First, Household 1 will contribute some amount that is $x_1$. Then, after observing $x_1$, Household 2 will contribute some amount that is $x_2$. Finally, after observing $x_1$ and $x_2$, Household 3 will contribute some amount that is $x_3$. If $x_1 + x_2 + x_3 \geq 100$, then the company will go ahead with the clean-up and keep any proceeds. If $x_1 + x_2 + x_3 \leq 100$, then the company keeps all contributions and the clean-up is not done.
Find the subgame perfect Nash equilibrium.

My answer
Consider Household 1. Observe that it is always in Household 1's best interest to have the beach cleaned,  since $200 > 100$, so he should offer $100$. Now, Household 2 sees this and knows that enough contribution has been made for the clean-up to happen, since $100 \geq 100$, so he will offer $0$. A similar argument can be made for Household 3. Thus, the equilibrium outcome is $\{x_1 = 100, x_2 = 0, x_3 = 0\}$.

Note
I know that the question asked for the subgame perfect Nash equilibrium, but my professor has specifically stated that, for the purposes of the module we are taking, being able to come up with the equilibrium outcome is sufficient (i.e. We do not know how to solve for the actual subgame perfect Nash equilibrium).

I have two questions.

Is my equilibrium outcome correct?
May I know if my reasoning is sufficient/complete/logical to arrive at the outcome I had reached?

We have just covered game theory, so I am still trying to get used to answering such questions. Any help/thoughts on my answer will be greatly appreciated :)


texts: Negative consumer externality vs demerit good - what's the difference?

texts:
The example I was given for each was cigarettes.

What market may have negative consumer externalities but is not a market for a demerit good?
What is a type of demerit good that may not have a negative consumer externality?


texts: When does the interest rate parity curve shift?

texts:
Given the IS LM IRP model,

can somebody tell me the difference for when there is a movement along the IRP curve and when there is an actual shift in the IRP curve?


texts: Macroeconomic policies and trade balance

texts:
Which of the following policies does not contribute in lowering the trade deficit?

a) the increase of government expenditure

b) growing the internal interest rate

There is only one correct answer, but I fell like both of them are wrong. Can someone help me with an argument?


texts: Fed hikes rates - what will happen in Europe?

texts:
There's been a lot of talk about the Fed hiking rates soon, and this should be inevitable within the next few months. In the longer term (let's talk about the next 2-5 years), the rates are probably going to keep climbing, and at some point, the economy begins to slow down, stocks will decline, and investing in bonds becomes attractive.

All of the above is from the viewpoint of a person living in the USA. However, Europe is in a different situation economically, and it looks like there isn't going to be a rate hike any time soon by the ECB.

My question is, since financial markets are so integrated these days, what is going to happen to the European economy and the stock market in the next 2-5 years, if the base rate stays close to zero to stimulate growth, while at the same time in the U.S., the Fed raises the rate to somewhere near 5 percent?

In other words, how does the U.S. monetary policy affect European consumers and investors? Especially if the two are in different phases in their policy cycles (will the cycles eventually be synchronized?).


texts:
One of the salient feature of single proprietorship is

  Enterprise and owner entity is same.

What does enterprise and owner entity refer to?


texts:
Is it possible to calculate how long it will take to reach Break Even Point if the information provided is only an ROI (Return On Investment) of 10%?

Only ROI is provided. If there is a way to calculate, please say so.


texts:
Looking for the simple time series of the Census data, population per county thru the years available.

Thank you much for anyone who has this data, or can link to the right source


texts: Age effect when controling for individual fixed effects and time fixed effects

texts:
I have a individual-by-year panel. Although age is varying within an individual, its variation is fully absorbed when I include individual fixed effects and time fixed effects. This is because each individual has a unique birth year. My question is, when I run
$$
Y_{i,t} = \beta X_{i,t} + \alpha_i + \delta_t+\epsilon_{i,t},
$$
does "age effect" play a role in the estimates?


texts: Optimisation and Theory of Comparative Advantage

texts:
In my school's lecture notes on International Trade, a numerical example of how the Theory of Comparative Advantage is featured. It is a simplified 2-country, 2-goods model and features constant opportunity costs.

  The US is able to produce either 200 kg of wheat or 120 m of cloth while China is able to produce either 10 kg of wheat or 20 m of cloth. That means, the US has an absolute advantage over China in the production of bosth wheat and cloth. However, the US has a comparative advantage in the production of wheat, sacrificing only 0.6 m of cloth for each 1 kg, while China has a comparative advantage in the production of cloth, sacrificing only 0.5 kg of wheat for each 1 m. Initially, each country allocates equal amounts of resources to the production of each commodity: US produces 100 kg of wheat and 60 m of cloth while China produces 5 kg of wheat and 20 m of cloth. However, this arrangement is not optimal. China specialises completely in the production of cloth, producing 20 m of cloth while the US engages in partial specialisation, producing 110 kg of wheat and 54 m of cloth. They then engage in trade with an exchange ratio of 1 kg of wheat to 1 m of cloth. China gives the US 10 m of cloth while the US gives China 10 kg of wheat. The outcome of specialisation and exchange is that China is able to enjoy more wheat while the US is able to enjoy more cloth.

However, I would like to find out what is the optimal production and trading arrangement such that both countries stand to gain the greatest amount of output overall for consumption. I am not sure how the numbers were chosen and why certain decisions were made (e.g. China completely specialising in cloth production, US diverting a tenth of its resources from cloth production to wheat production). Can calculus be used to find out what is indeed the most optimal arrangement?


texts: Has the shrinking of the American household improved or diminished household welfare?

texts:
Over the last fifty years U.S. average household size has declined dramatically. When making within-year comparisons of household income, it is regarded as good practice to adjust for adult-equivalent household size, often by dividing by the square root of the number of household members or the poverty level for households of that size, or by summing some weighted value of number of adults and number f children.

Assuming (as I do) that this practice is appropriate, should equivalence scales also be used in making intertemporal comparisons? I am very much of two minds about this. Changes in birth control technology, divorce law, and public assistance all suggest that constraints on smaller family sizes have been relaxed. If people took advantage of that relaxation, the usual economic approach would suggest that the change is welfare-improving. On the other hand, if families are shrinking mainly because men are louts and have increased ability to shirk their family support responsibilities, then that conclusion seems insecure at best.

To put the question in more concrete terms, I am doing some work on inequality trends using the CPS, and applying an inverse square root household size adjustment to HH income. I am thinking of normalizing that adjustment with a constant so as to leave median income the same, so that it is applied within but not between years. I can not decide if that is a good idea or not. Is there a literature on this?

I find it remarkable (shocking, actually) that this forum does not have tags for family economics (that's a field, for gosh sake), marriage, fertility, or any related item I could find. Or for intertemporal comparisons of utility or welfare.


texts: During QE what prevents the banks from selling government debt to invest in the stock market instead of lending out the money?

texts:
This is how QE is supposed to work:

The fed buys government debt from banks.
This lowers the long term interest rates and businesses and consumers borrow more, which is good for the economy.
But what if the banks instead of lending out money put most of their money in the stock market?
They know that somewhat later the money will get to the general population.
And some of the general population make a good living. So good in fact that they save a lot of money in index funds, and in particular when the interes rates are low. The banks already know in advance that this will drive up the stock market.
Since they can buy the stocks before the money has reached the general population they can buy the stocks at a lower price.
As a more detailed example assume the investment bank G. Gecko own 1e6 10 years treasury bonds at USD 1000 per bond.
The bonds have a coupon rate of 10 USD, resulting in a yearly return of 20 USD = 2%. Now the Fed starts buying up 10 year treasury bonds and the price of these rises to 2000 USD. Now the return rate of these bonds are only 1%. This is not enough so G. Gecko sells it bonds. Now it has doubled its money but it need to invest these somewhere. So it buys Apple stocks.
Another bank also sell treasury bonds but use the new money to lend out.
This improves the economy and some of the general population gets more money.
Some of this they use to buy Apple stocks. However this drives up the price of the Apple stock. Let us say it doubles. Now G. Gecko have turned their initial 1e9 USD into 4e9 USD. Apple does not benefit directly from the rise in its stock price? The general population seem to benefit from the money trickling down from the other bank but the big winner here seems to be G. Gecko.


texts: Definition of a 'Competitive Firm' and a 'Perfectly Competitive Firm'

texts:
In many of my intermediate microeconomics quiz and test questions I encounter the term "competitive firm" and/or "perfectly competitive firm", e.g.: In the short run, a perfectly competitive firm earning positive economic profit is...

My textbook has no explicit definition for either of the terms.  What assumptions should I make about:

The firm
The market the firm is operating in


texts: Which utility function yields following demand $\alpha p^{\epsilon}$

texts:
I am looking for a utility function that will lead to the following demand

$$\alpha p^{\epsilon}$$.

I know it is most likely a CES utility since the elasticity of demand is constant and this is usually consequence of CES utility.

I also believe that the second good most likely was set as the numeare good or that the function must be a special case when the relative prices do not matter.

I am also little bit confused because of the positive relationship between price and demand I guess it must be a Giffen good.

I tried to solve several problems with different CES utilities but did not ever got this. I am not sure if there is any analytical way how to get from result like this to initial problem, I am just using trial and error, I would appreciate any help.


texts: How to derive utility function from indirect utility in this exercise

texts:
Derive the consumer’s direct utility function if his indirect utility function has the form

$$v(\boldsymbol{\mathbf{p}},y)=yp_1^\alpha p_2^\beta$$

where $\beta ,\alpha$ are negative.


texts:
I am trying to estimate a nested multinomial logit model for transportation mode in R. I am using the following model.

data("TravelMode",package="AER")
TravelMode <- mlogit.data(TravelMode,choice="choice",shape="long",alt.var="mode",chid.var="individual")
TravelMode$avinc <- with(TravelMode,(mode=='air')*income)
nl.TM <- mlogit(choice ~ wait + gcost + avinc, TravelMode, reflevel = "car",
                nests = list(fly = "air", ground = c("train", "bus", "car")),
                unscaled=TRUE)
summary(nl.TM)

Page 35 http://www2.uaem.mx/r-mirror/web/packages/mlogit/vignettes/mlogit.pdf#page=67&zoom=100,58,266

My Question: How do you indicate a variable is to be considered in the branches (Fly vs Ground) as opposed to the within the twigs (Air, Train, Bus, Car) in the mlogit function in R? As you can see from the specified model above, all the variables are dumped into the model without consideration as to when the variables matter in the decision tree.


texts: Marginal product versus marginal productivity in a Cobb-Douglas production function

texts:
CFA Kaplan Schweser claim that

  Cobb-Douglas function exhibits constant marginal product of capital
  but diminishing marginal productivity of capital.

I think this statement is not right.
My view is that Cobb-Douglas production functions exhibits decreasing marginal product of capital and constant marginal productivity of capital.

I am more or less sure that Schweser made a mistake but just want to confirm.


texts: If assets = liabilities + equity, what do we mean by overcapitalization?

texts:
Overcapitalization doesn't seem to have a clear-cut definition.

For some it seems to deal with the ratio of current output (Y) over optimal output (Y*). A company would then be overcapitalized if Y < Y*, meaning it could raise its output without having to recapitalize.

Others define it as Equity + Debt > "True Value of assets"

I like the second definition but it is subjective.

I am trying to understand the concept of overcapitalization in the context of a firm's valuation.


texts: Why doesn't the San Francisco Bay Area have two-story houses?

texts:
The San Francisco Bay Area is an interesting place. Housing prices are through the roof (hehe) and increasing by an average of 5-20% per year for the past 20 years. This is largely driven by an increase in land values, as the SF Bay Area has very high incomes and rapid hiring, but geographically constrained area for settlement, leading to a supply and demand issue that has been driving up home prices to astronomical levels.
Interestingly, nearly all homes in the Bay Area are one-story, as opposed to the two-story homes so common elsewhere. I'm trying to square this with the relevant economic factors and I'm coming up just a bit short. Why would a land-dominant housing market lead to below-average construction of larger houses, when the relative cost of building a second floor is lower than it would be in a market where land is cheaper?


texts: IS-LM , Eurozone and Interest Rate Parity

texts:
In the IS-LM framework, when the CB expands Money supply, interest rates are driven down, investment is boosted, and aggregate output increases (shift of LM curve, movement along IS curve). In the case of the Eurozone, given that member countries are not able to unilaterally expand money supply- this is the mandate of the ECB- it is often said that there is no monetary independence. However, interest rates in different European countries are different. I have two questions:

i) Even though the currency is the same, the interest rates are different. Would a risk premium be the only explanation for the interest parity condition not holding here (there is no risk of devaluation for the same currency)?

2) The Central bank of each country has no power over the money supply. However, the yields are still different. Is this purely a result of market forces (again determined by differences in risk?)?

In a broader sense, what is the role of the European network of central banks when they can't control the Money supply ? (the main purpose of existing for most central banks).


texts: How long does it take for shocks to propagate through the price system / market?

texts:
Has anyone calculated or theorized about how long it takes prices to come to some kind of equilibrium after a market shock has happened? How has this changed over time?

An example might be a spike in the price of oil. If oil independently spikes from 50 dollars/barrel to 100 dollars/barrel in a day, how long will it take prices (food prices, car prices, wages, etc) to find equilibrium again?


texts: Why are prices made available to the public?

texts: Price in micro is the point at which demand and supply meet. But in real world no one knows about the actual demand curve or supply curve. yet prices are set, so in a way there is a lot of costs being borne out in the process of setting up this price, and yet it is available as a public good. any good economic paper that discusses this point or any thoughts on the same would be highly appreciated.


texts:
I was reading this article on planned obsolescence, which states

  On a macroeconomic scale, the rapid turnover of goods powers growth and creates reams of jobs

In context, it's implied that this is good - it is good to have people working to design, market, make, and distribute goods to replace other goods that break after a short lifespan.

Naively, it seems very bad to me, compared to the option of having goods that last a long time. Those people working on making replacement goods are now not available to work at other jobs or use that time on other pursuits. If the goods lasted longer, we could spend far fewer resources, as a society, supplying everyone with goods. Then we would have many more resources (raw materials in the goods, human labor making the goods, time consumers spend comparing and purchasing new goods, etc.) available to solve other problems or take on other projects.

Yet, I almost always hear people refer to a project or industry hiring lots of people to work on it as an innately good thing, unlike all other forms of resource expenditure. (I never expect to hear that planned obsolescence has an upside because, "look at all the copper it's using!" or "it really keeps our power plants busy providing electricity for the factories!".)

Why is "jobs" treated so differently as a resource, and should I change my naive approach to thinking about them?


texts: Will a shift in the average total cost curve mean that the marginal cost curve will also shift up?

texts:
I understand the basic concept of marginal cost and average total cost. I am currently learning about costs curve for an oligopoly

I read online that the marginal cost is not determined by fixed costs, as the derivative of them is zero.

Based on this, is it possible for the average total cost curve to shift upwards without the marginal cost curve also shifting upwards? For example, when the fixed costs increase (rent goes up for example), would this cause a shift in the average cost curve upwards? And would marginal cost not increase?


texts: What is the difference between comma and plus in the bellman equation?

texts:
Bellman equation:

$V(x) = max \{F(x,y)+ \beta V(y)\}$

$V(x) = max \{F(x,y), \beta V(y)\}$

When to use the plus and when to use the comma?

Would you mind give me an example to explain such difference?

Thank you very much !


texts:
Consider the simplest problem of optimal control
\begin{align}
      &\max_u\int^T_0{F(y,u)dt}\\
\text{s.t.} \quad&\dot y = f(y,u)\\
& y(0) = y_0\\
& y(T)~~\text{free}
\end{align}
where $y$ is the state and $u$ the control. I'd like to use a static-like approach to derive the necessary conditions of the maximum principle. Build Lagrangian:
\begin{align}
L^1(y,u,\lambda) = \int^T_0{[F(y,u) + \lambda(f(y,u)-\dot y)]dt}
\end{align}

Necessary conditionds for optimum are given by
\begin{align}
L^1_u &= \int^T_0{[F_u + \lambda f_u] dt} = 0\\
L^1_\lambda &= \int^T_0{[f(y,u)-\dot y ]dt} = 0
\end{align}

Define Hamiltonian
\begin{align}
H(y,u,\lambda) := F(y,u) + \lambda f(y,u)
\end{align}

such that the FOCs can be written as
\begin{align}
H_u &= 0~\forall t\\
H_\lambda &= \dot y~\forall t
\end{align}

For last FOC we write Lagrangian as (integrating by parts)
\begin{align}
L^2(y,u,\lambda) = \int^T_0{[H(y,u,\lambda) + \dot\lambda y]dt} + y_0\lambda(0) - y(t)|_{t=T}\lambda(T)
\end{align}

Note that $L^1=L^2$. Last FOC is given by differentiating over $y$ ($y_0$ drops, cause it's fixed)
\begin{align}
L^2_y &= \int^T_0{[H_y + \dot \lambda] dt} - \lambda(T) = 0\\
\end{align}

and finally
\begin{align}
H_y &= -\dot \lambda ~\forall t\\
\lambda(T) &= 0
\end{align}

So we are done here.

How can I get those conditions without varying the Lagrangian, i.e. stick to either $L^1$ or $L^2$?


texts: How can the Fed realistically address the issue of frontrunning (in the context of its ETF purchases)

texts:
In the first two days in which the Fed's corporate bond program started buying ETFs, purchases totaled around USD305m. The size of the program is much larger, and it would seem very reasonable to assume fund managers will know this and proceed to frontrun the Fed.

In light of that, I'm curious if this program will result in a pareto improvement for the (financial) economy, but will set that issue aside for the purposes of this question.

Question

Is there any policy lever the Fed can attempt to use to address the moral hazard / frontrunning dilemma that seems it will be facing in the weeks/months ahead?


texts: Are simultaneous equation models out of fashion? Why?

texts:
According to Angrist & Pischke "Undergraduate econometrics instruction: Through our classes, darkly" (2017) Tables 2 and 3, econometrics textbooks deemphasized simultaneous equation models considerably from 1970s to 2010s. Their relative weight in terms of page count has shrunk about 4-5 times relative to other topics and they occupy very little space in modern syllabi. Edit: as 1muflon1 correctly notes, Angrist & Pischke (2017) provide evidence on undergraduate textbooks, not textbooks in general nor use of simultaneous equation models in academic or nonacademic research.
Are simultaneous equation models out of fashion (besides their coverage in undergraduate textbooks)?
If so, why did this happen?

Were these models found especially problematic?
Were alternative, more attractive models proposed to deal with the same research problems?
Were the research problems requiring structural equation models abandoned?
Did changes in data availability (size, dimensionality of samples) play a major role?
Did the increase in computational power play a major role?
Any other cause?


texts: Why do firms adjust their fixed costs in response to a change in price in a perfectly competitive market?

texts:
When firms make a profit in a perfectly competitive market, new firms enter the market and drive the price down. My textbook says that the existing firms will then adjust inputs that are fixed in the short term, such as capital, in order to operate with a lower average cost:

This is in order to maximize profit, but I don't understand why the short-run average cost curve would change at all. In my opinion, the minimum point of the long-run average cost curve, where there are constant returns to scale, is the profit-maximizing point in the long run. In order to substantiate this claim, I came up with a short-run total cost function

$$TC=0.001Q^3-0.09Q^2+2.95Q+20$$

and derived the average total cost

$$ATC=0.001Q^2-0.09Q+2.95+20/Q$$

and marginal cost

$$MC=0.003Q^2-0.18Q+2.95$$

Assume that the price is variable. Then profit

$$\Pi=Q(MC-ATC)=0.002Q^3-0.09Q^2-20$$

can be thought of as a function that relies only on marginal cost and average cost, because at the profit-maximizing point, $MC=MR=P$. But as $Q\to \infty$, $\Pi \to \infty$ because $\Pi$ is a cubic equation with a positive coefficient on the $Q^3$ term. This means that the higher the price is above the minimum point of the short-run average total cost curve, the higher profit will be. Thus, profit is maximized when the lowest possible short-run average total cost curve is selected, in any perfectly competitive market condition, at least for cubic total cost curves (and I assume that the cubic function is the most applicable for a total cost curve). The lowest ATC curve is obviously the one where there are constant returns to scale.

You can see the difference between marginal cost and average total cost getting larger and larger here:


texts: How do oil prices rise when crude oil inventories fall?

texts:
I am new to economics, I am reading a post on CNBC which states

Weekly crude oil inventories unexpectedly fell, supporting further gains in oil prices.

1) Why does crude oil inventories unexpetedly falling make oil prices rise?

2) By Crude oil inventories falling do they mean stock running out due to mass purchase?

3) What could cause oil inventories to unexpectedly fall?

I am assuming a purchase from somebody lowering stock overall could cause panic buying from others therefore temp demand making prices rise? - Probably wrong.


texts: Are debt/GDP ratios calculated with real or nominal GDP as the denominator?

texts: As the title suggests, I would like to know whether the numbers are generally calculated with real or nominal GDP. Besides that I would also like to know whether it matters and how significant of a difference this could make.


texts: Interpreting Disequilibrium: Inelastic Supply and Demand at different quantities

texts:
How does one go about interpreting a case of  inelastic supply and demand that are based at different quantities? There is no equilibrium in such a case and therefore nothing supplied or demanded.

Two Questions
1.How would one go about looking at the the type of good we have here?2. Is this case even possible?


texts: Constant Elasticity of Substitution: Special Cases

texts:
Take an $n$-commodity constant elasticity of substitution utility function,

$$U = \left[\sum^n_{i=1} \alpha_i x^\rho_i \right]^\frac{1}{\rho}$$

How do we show the following:

Show that as $\rho \rightarrow 0$ that this utility function represents preferences for Cobb-Douglass utility. $U(x) = \prod^n_{i=1} x_i^{\alpha_i}$
Show that as $\rho \rightarrow - \infty$ that this utility function has the indifference curves as in Leontief utility. $U(x) = \min\left\{x_1,...,x_n\right\}$


texts: Why two goods are of different types of Cross Elasticity if we swap them in formula?

texts:
I am using this formula for calculating Cross elasticity of demand:

$ E_{XY}^D = \Large\frac{(Q_2^X - Q_1^X)(P_2^Y + P_1^Y)}{(Q_2^X + Q_1^X)(P_2^Y - P_1^Y)}
$

If $E_{XY}^D$ > 0 Then goods X and Y are substitutes.
If $E_{XY}^D$ < 0  Then goods X and Y are complementary.
If $E_{XY}^D$ = 0 Then goods X and Y are independent.

I have this data:

P1 and P2 are prices; Q1 and Q2 are quantities.

Using above formula I have calculated cross elasticity $E_{XY}$ and $E_{YX}$ in Excel:

I calculated Cross Elasticity for X and Y and the goods turned out to be Complementary goods, but when I swapped X and Y and calculated using the same formula the goods X and Y become Substitutes.

Why two goods belong to one type of cross elasticity, but if we swap X and Y and plug values into formula the goods turn out to be another type of Cross Elasticity. Can two goods be considered substitutes and complementary at the same time? Isn't it illogical?

Excel file with data and calculations available here: Dropbox


texts: Money supply M0 and M1 data for students

texts:
Its my first time on economics xchange. I am a student of M.Phil. Economics 1st semester. I am writing a term paper and I need some data.

I am looking for money supply M0 and M1 data for top 50 countries (preferably in USD) for the year 2000. My university has a subscription of http://www.tradingeconomics.com/. But that is only accessible in the university's library.

I am back home for vacations. So I wanted to ask if anyone knows of a resource where this might be available for students free or at a low cost. Or if someone of you can provide this data. Thanks.


texts: Is Keynesian economic theory still considered capitalism?

texts:
When we compare neoclassical economic theory with Keynesian economic theory as they pertain to capitalism, do they both fall within the spectrum of capitalism? or is Keynes's idea of state intervention considered socialism rather than capitalism?

What I'm struggling to understand is does capitalism exist in a singular form which is the one proposed by neoclassical economists or could it take different forms that involve some state intervention and still be considered Capitalism?

I don't have an economics background and am currently reading 'Contending Economic Theories' by Richard Wolff and Stephen Resnick and this is a point that I'm trying to clarify so please excuse me if I have misunderstood some concepts.


texts:
I'm looking through The Investment Decisions of Firms by S.J. Nickell, and I've come across some notation that I don't quite understand. Any clarification would be very welcome.

Nickell first assumes that firms face a downward sloping demand curve:

$$
z\{p(t)\}\beta(t) \textrm{ where } z_p<0.
$$
He says:

  The demand curve itself thus has a constant shape defined by
  $z\{p(t)\}$ and is shifted up and down by the time function
  $\beta(t)$.

So $z$ is some kind of functional form whose first derivative in $p$ is negative.

Now comes the part that confuses me. He assumes that firms adjust output according to demand.

  As a result we have $$ z\{p(t)\}\beta(t) = F\{K(t),L(t)\}. $$ Solving
  for the output price we obtain $$ p(t) = p[F\{K(t), L(t)\}/\beta(t)]$$

How did he get this? $F$ equals quantity demanded. Fine, it's the assumption. But why is $p$ the inverse of $z$?

Then he derives these partial derivatives, which are also confusing me because he brings $z$ back in:

  $$
\frac{\partial p}{\partial K} = \frac{F_K}{z_p \beta(t)} \quad\textrm{and}\quad
\frac{\partial p}{\partial L} = \frac{F_L}{z_p \beta(t)}.$$

Like I said, any help is most welcome. I think what's mostly confusing me is the inverse function bit. I can see how he gets the partial derivatives otherwise.

Thanks.


texts: Basic question on calculating unemployment rates

texts:
I would like to know if I have interpreted the following statement correctly and would be grateful of any help at all.

"The unemployment rate for 16-24 year olds not in full-time education was 12.2%"

I read this as the proportion of economically active 16-24 year olds that are not in full-time education and unemployed is 12.2%.

To clarify I believe it says $$12.2\%=\frac{\text{economically active (full time education and unemployed)}}{\text {economically active (FTE unemployed + FTE employed)}}$$

Is this correct?  I have looked online and have only seen the term unemployment rate in terms of the general population.

I am not an economist but a maths teacher and require the information to understand material for an upcoming context based exam.  I have no trouble with percentages but need to make sure I have interpreted the economics correctly.

Thanks in advance for any clarifications.


texts: Is it possible to reconstitute a labor theory of value?

texts:
I am not an economist, so highly technical answers may escape me. I know that since Jevons, Marshall, and the "marginal revolution" the classical labor theory of value has been largely abandoned. And clearly, some concept of utility must inform pricing at some level.

But is there any inherent reason why a labor-based system of value and pricing adequate to a modern market economy cannot work? Have any been proposed? What would be the consequences or shortcomings of such a system?


texts: In an intertemporal (2-period) consumption model, why is the investment rate independent of discount factor?

texts:
In lecture, my professor defined the following 2-period consumption model:
$c_i = $ consumption in period $i$.
$y =$ endowed income in period 1.
$r = $ interest rate in perfect credit markets.
$h = $ money invested in period 1.
$w(h) = $ period 2 return on money invested in period 1.
$U(c_1, c_2) = u(c_1) + \beta u(c_2)$ an additively separable utility function with discount factor $\beta$.
Then the budget constraint is $$c_1 + \frac{c_2}{1+r} = y - h + \frac{w(h)}{1+r}$$ so the Lagrangian for utility maximization is $$L = u(c_1) + \beta u(c_2) + \lambda \left( y - h + \frac{w(h)}{1+r} - c_1 - \frac{c_2}{1+r} \right).$$ But then $h^*$ is determined entirely by one of the first order conditions, $$L_h = \frac{w'(h)}{1+r} - 1 = 0,$$ which is independent of $\beta$.
My professor said that this means "patient and impatient people invest the same amount $h^*$, maximizing the net present value of income." Mathematically, I understand why this has to be true, but intuitively it doesn't make sense. If $\beta = 0$, for example, shouldn't we invest $h=0$ because all consumption in the future provides 0 utility? Why doesn't similar reasoning apply to very small $\beta$? And why would we be trying to maximize the NPV of income if income in the first period provides more utility than income in the second period?


texts: Aggregate production function, factor shares and cointegration

texts:
When estimating an aggregate production function you fit your data to a selected functional form of the production function, derive the parameters and inference from there.

My question is, is there a reason for testing for cointegration (i.e. Engle & Granger method) of the production input variables' time series data? What is the extra information you could derive from, for example, VECM analysis of such cointegrated variables, apart from their long-term relationship?


texts: I need to study Synthetic Control Method for my term paper. So can anyone suggest some book/literature from where I can study Synthetic Control Method on my own?.


texts: Interpretation of Incidence Rate Ratio for a Poisson Regression With a Non-Binomial Dependent Variable

texts:
Well, the name pretty much says it all. I have searched high and low, but I cannot find a concrete answer to the following question(s):

How would one interpret the incidence rate ratio for a poisson regression with a non-binomial dependent variable? Also, can this be generalized? i.e. will the interpretation be the same for any count model or does it differ by model?


texts: Can implicit costs make every option not worth doing?

texts: I'm new to microeconomics so sorry if this is simplistic, but if an action should only be taken when benefits > costs and opportunity costs are included in cost calculations, how would one deal with situations that arise when implicit costs make either choice not worth doing? For example, if you have the option to see a movie or go bowling at the same time, and the movie ticket is 10 dollars with 12 dollar benefit and the bowling entry is 15 dollars with 17 dollar benefit, wouldn't that make the costs (including opportunity cost) of the movie 27 and bowling 27, both higher than their benefits, so a person should choose to do neither? This seems illogical so I'm sure I am missing something.


texts: I don't quite understand here, how exactly is the strategy $(\sigma_1(U),\sigma(M),\sigma_1(D))=(0,1/2,1/2)$ dominates $U$ since if you look at the first column, $5$ is greates than $3/2+4/2=1.5+2=3.5$ . I'm guessing i'm doing something wrong. Could someone please tell me what i'm doing/thinking wrong?


texts: How should I define most of the import or export when doing analysis of the import and export of a country?

texts: let's say I'm analyzing the import of France and it is 100 billion dollars and is divide between 200 countries. how should I gauge where has most of the import come from? top 10? 90 percent of the import? what should be used as a measure here?


texts: Under what conditions is a monopoly undesirable?

texts:
First of all, I realize that "undesirable" is an ambiguous term. So, to clarify, when is a monopoly undesirable under the following metrics?

Pareto efficiency
Reduces consumer surplus
Social Welfare (could this possibly be different from the pareto efficiency criterion?)

Are there any criteria that I'm missing? Also, if we take into account potential general equilibrium effects (like the effect on wages), does the analysis change?


texts: During an economic expansion, how do the ratios of Return on Equity and Return on Asset are affected?

texts:
From my perspective, during an economic expansion, industrial production, employment, personal incomes and sales are increased excluding the inflation rate. To be more specific, companies buy new machines or build new factories to increase the production in this period and to expand the business, the company should finance the expansion either through debt or equity.

Therefore I thought Return on Equity (ROE) would be increased because companies borrow more debts, which leads the denominator of ROE formula, shareholders' equity, to be decreased and it results ROE to be increased.

However if the company finance their expansion by the equity, not through debt financing, then denominator of ROE formula, shareholders' equity would be increased therefore the ROE will be decreased.

Then during an economic expansion, how does the ROE will going to be changed, decreased or increased?


texts: Utility theory or decision theory based on partial semiorders?

texts:
Roubens, Vincke & Pirlot have summarized and extended representation theorems for partial semiorders in the 80s and 90s. See e.g. Roubens, M. & Vincke, P.: Preference Modelling. Springer, 1985. Vincke, P. & Pirlot, M.: Semiorders: Properties, Representations, Applications. Springer, 1997.

Basically, for finite domains, if $P$ is a strict preference and $I$ is a nontransitive indifference relation such that $R=P\cup I$ is an incomplete semiorder, then a utility function $u(.)$ and a constant $\delta$ partially represent the ordering in the following way:

$aPb \Rightarrow u(a)>u(b)+\delta$

and

$aIb \Rightarrow |u(a)-u(b)|\leq \delta$

I'm not an economist but currently work on metaethical problems in philosophy, and was wondering whether any economists or decision theorists have used this type of representation, e.g. for consumer preferences or for some utility-maximizing decision making? In other words, is this type of thing an "old hat" in economics or rather uncommon? Do economists use it?


texts: Is my reasoning about economic growth and environmental sustainability correct?

texts:
Below is my attempt to answer question "Can we have economic growth and environmental sustainability?".

Please correct me if I got something wrong in my reasoning.

Let's see what is counted as economic growth and environmental sustainability:

a)Economic growth happens when we produce more goods and services than our Production Possibility Frontier (aka PPF) previously allowed. In its turn, this usually happens when we have more labor and/or capital and/or land than previously. The exception for this are gains from specializing  in producing and selling goods in which given country holds comparative advantage. If we just started using our labor/capital/land more efficiently we still would be inside our Production Possibility Frontier, although it would lead to increase in production of goods and services.

b)Environmental sustainability happens when following conditions are met, according to Herman Daly:

For renewable resources, the rate of harvest should not exceed the rate of regeneration (sustainable yield);
[For pollution] The rates of waste generation from projects should not exceed the assimilative capacity of the environment (sustainable waste disposal); and
For nonrenewable resources the depletion of the nonrenewable resources should require comparable development of renewable substitutes for that resource.

Considering this, we can have economic growth thanks to producing and selling goods in what we have comparative advantage, while reducing production of goods in what have have comparative disadvantage. To put it simply, more free trade, less subsidies of uncompetitive industries - more growth. And it's compatible with environmental sustainability.
We can increase labor (which is understood as amount of work done) by, say, curing people who are unable to work due to an illness. Or by punishing people who can work, but don't want to work (like USSR did). Or by making people work for longer hours. Or by making sure that workers are really working instead of, say, wasting time playing games and checking their Facebook. Or by training part-time workers to be qualified for a full-time job. Such measures can lead to economic growth and are environmentally sustainable.
As for land, there does NOT seem to be any environmentally sustainable way to get more of it. If only you don't seriously consider scenario when one country gets territory that previously belonged to another country. But it's a zero-sum game.
Capital is understood here as all man-made goods which are used for further production of wealth.
We can increase our capital in an environmentally sustainable way if we will increase capital  thanks to more efficient use of existing labor, land and capital. Again, increased production of capital (and other goods) due to more efficient use of existing labor, land and capital does NOT itself mean economic growth. But after capital will be increased it will be possible to produce outside previously established PPF, meaning that economic growth have occured.


texts: Which are commonly used economics dictionaries?

texts: Do economic dictionaries distinguish between different interpretations of terms in different economic schools of thought, or are there different dictionaries for different schools of thought?