texts: law of diminishing marginal returns and regression on the factors of production

texts:
Does it make any sense to create an equation with
Profit ~ Production factor1 + Production factor1 ^ 2 + Production factor2 + Production factor2 ^ 2
to explain how much the increase of 1 in a company's production factors influences its profit? The idea is to derive and equal to zero and find the amount of production factor that maximizes profit. The function will have this format:
<img src="https://i.stack.imgur.com/5K87s.png" alt="the function will have this format
" />
# some R code
#Regression Approach
{
 dat<-data.frame(profit=c(6000,9000,11080,12000,15010,14515,12000,11000,9000),
                factorP1=c(2,3,4,5,6,7,8,9,10),
                factorP2=c(0,0,40,50,70,70,80,90,100))

  d<-lm(dat[,1]~dat[,2]+I(dat[,2]^2)+dat[,3]+I(dat[,3]^2))#,data = dat)
 plot(dat$profit,xlab="Production Factor",ylab="profit")
    lines(predict(d),col="blue",lwd = 2)
    legend(3,0.5*max(dat[,1]), legend=c("Linear"),
           col=c("blue"), lty=1:2, cex=0.8,
           title="Model", text.font=4, bg='lightblue')
  library(MLmetrics)

  print("MEAN ABSOLUTE PERCETAGE ERROR")
  print(   MAPE(predict(d),dat$profit))
  #library(car)
  #vif(d)#Multi-collinearity
  #library(lmtest)
  coe<-coef(d)
  coe[is.na(coe)]<-0
  company<-optim(c(0,0),function(x){coe[1] +coe[2]*x[1]+coe[3]*x[1]^2 +coe[4]*x[2]+coe[5]*x[2]^2}, control=list(fnscale=-1),
                 upper=c(9999,9999),lower=c(0,0)) # linear

  names(company$par)= names(dat[-1])
  print(company$par)
  names(company$value)= "profit"
  print(company$value)
} #end of regression approach

# Trial and Error approach
#the company grows its database by trial and error and just:

dat[which.max(dat$profit),]

is there an error with regression approach? is this how companies plan their growth?


texts: The Fed pays 1.50% interest on reserves; so why are interest rates so low?

texts:
Since 14th Dec 2017, the Federal Reserve Bank has paid 1.50% interest on excess reserves.

So why do depositors' interest rates still remain so low? According to BankRate, across the US, the national average savings account interest rate is 0.09% and only a handful of banks offer 1.50% or more.

The Econ 101 story would go something like this:

  If Bank A offers 1% and Bank B offers 1.3%, then consumers will move all their savings to Bank B. Bank A will then compete by raising its rate to 1.31%, which is still profitable since it can deposit its money at the Fed for 1.50%. Bank B will then raise to 1.32%, etc. Competition will ensure that the interest rate is driven up towards 1.50%.

I imagine there are some transaction and administrative costs, but I don't see how these could explain the huge gap between the national average savings interest rate (0.09%) and the interest rate paid by the Fed to banks (1.50%). I do believe also that there is no limit to the reserves that banks can place with the Fed (though please correct me if I'm mistaken on this point).

What am I missing here? Or: Why does this market deviate markedly from the perfectly competitive ideal?

Some possible general explanations off the top of my head (but I suspect there may be other more specific institutional factors that I'm not aware of):

Consumer ignorance. (Similar to this recent working paper which documents that people fail to pay off those credit card debts that charge the highest interest, and instead adopt some sub-optimal "balance-matching" heuristic.)
Consumers face transaction/psychic costs moving their money about, setting up new accounts.
Banks offer other services, so consumers may still prefer to save with a bank despite its lower interest rate.
Menu costs - it's somehow costly or maybe bad publicity to frequently change the bank's savings rate.


texts:
Let's say village A has all the something S they need, and village B has all the something T they need. The properties of S outweigh the benefits of T.

Village A and village B start to trade S for T.

After trading, is the value V of S + T now different?


texts: Using small area estimation to help measure wage estimates for cohorts (labor quality measure)

texts: I am looking for research or information on uses of small area estimation for economic data.  Are there any good resources that are available?


texts: Central bank loss function (I did a solution, but it doesn’t totally make sense I guess)

texts:
I have question on central bank loss function.

We know that the central bank loss function is

$$L(\pi, \bar{Y})= (\pi- \pi^e)^2+\beta \bar {Y}^2$$

And we know that fisher equation is $$i=r+\pi^e$$

where $r$ and $i$ Are respectively the real and nominal interest rate.

I want to minimize CB’s loss function by choosing $i$

——-

I tried to solve it. But it’s meaningless and so wrong:(

When I searched on the Net, I always saw that the CB loss function is minimized by substituting Phillips curve and takes derivative with respect to $Y$.

So, I substituted the fisher equation into the Phillips curve i.e. $\pi=a \bar{Y} +\pi^e= a \bar{Y}+i-r$

And then I substituted this equation into the loss function I.e. $L(\pi, \bar{Y})= (a\bar{Y}+i-r- \pi^e)^2+\beta \bar {Y}^2$

And take its derivative with respect to $i$

I got $2(a\bar{Y}+i-r-\pi^e)=0$

$i^*=\pi^e-a\bar{Y}+r$

But I think my way is wrong. Because this result doesn’t make sense.

Please let me show a way how to solve it. Any help would be appreciated.

Thanks a lot.


texts: Why shouldn't governments use Forex reserve to pay their debts?

texts: India has around 470 billion USD in debt and has around 400 billion USD in forex reserves. So why should India or any other nations shouldn't use their forex reserves to pay off their external debt ?


texts: Extending the Muth-Mills Model to Different Income Groups?

texts: I am exploring the generalized treatment of the Muth-Mills monocentric city model covered in Brueckner's article. The model is based on an assumption of homogenous income levels across the city. However, a more realistic assumption would be to assume the presence of different income groups, which theoretically results in different bid-rent curves. How might I modify the model given in the article to reflect this?


texts: In simple terms: what are the implications of homothetic and nonhomothetic consumer preferences?

texts: I am looking for a simple explanation of the implication of having homothetic/nonhomethetic preferences in relation to consumers' preferences when consuming goods.


texts:
I have seen several papers that refer to the CPI Research Database, which contains micro-level data on prices in the US. For example, the data was used by Klenow and Kryvtsov (2005) and Nakamura and Steinsson (2007).

The only similar thing I found is Average Price Data on the site of the Bureau of Labor Statistics. Unfortunately, this dataset is quite small. First, only food and fuel are presented there. Second, average consumer prices for food are available for the U.S. city average and four regions only. However, Nakamura and Steinsson (2007) write that prices of food are collected monthly in 87 areas.

So, there potentially is a more informative dataset which contains information on prices in all areas.

Can I get it? What is the CPI Research Database? Is it available for the general public?


texts: How does one derive the elasticity of substitution?

texts:
For two goods $x$ and $y$, the elasticity of substitution is defined as $$\sigma \equiv \frac{d\log\left(\frac{y}{x}\right)}{ d\log\left(\frac{U_x}{U_y}\right) }= \frac{\frac{d\left(\frac{y}{x}\right)}{\frac{y}{x}}}{ \frac{d\left(\frac{U_x}{U_y}\right)}{\frac{U_x}{U_y}}} $$

I am confused by two things:

Why do we just write $d\log\left(\frac{y}{x}\right)$? What are we differentiating with respect to?
How do I use that that to show the above relation?

Can someone explain?


texts: Why can't someone have their money restored if someone they paid in advance goes bankrupt?

texts:
A friend paid a travel company €3000 for a holiday in Australia. However the travel company went bankrupt so now her €3000 is lost. She has been informed by the liquidator that the company had such debt that she will not be getting any of her money back.

To me she is a victim of a system that requires the customer to pay in advance - we get that you have to pay for a service, but if she paid in arrears like you would, say, a plumber, then she wouldn't have this problem. It seems unfair that some industries require advance payments and so present this problem even though the capitalist system is supposedly based on the idea you pay money for goods and services. She's down money but didn't receive the service.

So my (somewhat hypothetical) question is, why is it not feasible to just "restore" her money, if we assume it's undisputed that she has the right to it? The obvious answer is that since the company is bankrupt, there's nowhere for that money to come from, but why does it have to come from somewhere, isn't money just a representation of your current worth which you have to pay to receive goods and services? And since money is no longer tied to gold or anything - it would seem it's technically possible for the bank to simply add that money back to her balance.


texts: Supply/Demand Curve for Excise tax that's being passed 100% on to consumers

texts:
I'm doing a paper on the 'coca-cola tax' the tax on all sugary drinks. The premise is that it is an excise tax, which will then be passed 100% on to consumers. What I'm struggling with is how the supply demand curve appears.

In a normal excise tax, you would have something like the attached image, withe the area of Yellow AND Purple representing the tax (albeit more proportional), as both consumer and producer have their share of the tax burden. However if the producer passes the tax burden on to consumers, then the only the area in yellow would exist? Assuming the P1-P0 represents the amount of the tax.
So if i drew the same graph as below, but without the purple area, it makes sense to me, but it contrdicts all the models. UNLESS the supply is nearly perfectly elastic. Which you could argue it would be for the beverage industry?
I'm confused, help me out please

[][1


texts: Wealth Creation: Where does the money come from?

texts:
I'm trying to better understand wealth creation– let's use trade as an example.

I've bought a cup for \$2 and sold it for \$10. We've "created some new wealth" there– but without a net increase in actual dollars that exist, how has more wealth been created? Am I not just taking \$10 that already existed from someone who perhaps made it at their day job? Who's boss in turn took it from the sale of a bagel? Aren't these dollars that already exist?

How does this boil down into actual new wealth and money?


texts: Does a Robinson Crusoe economy have a substitution effect and an income effect?

texts:
Consider a Robinson Crusoe economy. Let $c$ be consumption and let $l$ be leisure. Our utility function is defined as

$$U(c,l)$$

Geometrically, I think we can say his indifference curve should be concave up, so therefore $\frac{dc}{dl} >0$ and $\frac{d^2c}{dl^2} >0$.

Typically we have a production function $$y = f(\ell)$$
where $\ell$ is labor, $f'>0$,$f''<0$ and $c \leq y$.  Also, I think $l = 1 - \ell$.

Also, note

$$MRS = MPL$$

WHY INCREASING PRODUCTIVITY MIGHT INCREASE LABOR

Suppose $f(\ell)=A \sqrt{\ell}$. Then
$$MPL = f'(\ell) = \frac{A}{2\sqrt{\ell}}$$
So then if $A \rightarrow \lambda A$, then for fixed $MPL$ we must have
$$MPL = \frac{\lambda A}{2\sqrt{\lambda^2 \ell}}$$

In other words, if $A$ increases, Crusoe works harder if we assume $MPL$ is fixed.

WHY INCREASING PRODUCTIVITY MIGHT DECREASE LABOR

But increasing $A$ would also mean essentially that Crusoe gets more production per unit of labor consumed. This gives him more $c$ available. This will mean his $MU_c$ goes down.

Recall $$MRS = \frac {U_l} {U_c}$$ If we assume $MRS$ remains constant, then $MU_l$ must go down to offset this change. This implies $l$ goes up and therefore, $\ell$ goes down.

So one could also argue changing $A$ results in $\ell$ going down.

MY QUESTION

What is the income effect and substitution effect in the case of changing $A$?

According to what my instructors have said (and I don't think they explain it well at all), the income effect is the latter change I described due to $A$ (i.e. decrease in $\ell$) whereas the substitution effect is due to the former change (increase in $\ell$).

But these don't match the income and substitution effects I learned about in my class on Marshallian and Hicksian demand functions. It seems very confused. Can someone define these explicitly or explain why my instructor has misused these two terms?


texts: Can an In the Money Put Option's price $>$ its Strike Price?

texts: The screenshot below suggests thatan ITM put option's price can't overstep its strike price? Why or why not?


texts: Illustrating difficulty to find dominant strategies: series of simple one-shot two-players games

texts:
For a game theory class I am prepping, I am looking for simple mathematical puzzles that can easily be presented as one-shot 2-players simultaneous games in which one of the players has a dominant strategy. The puzzle is to find the dominant strategy.

My goal is to interactively illustrate how "games are not equal in the face of dominant strategies": Although standard game theory predicts that players will play dominant strategies when they have one, dominant strategies can be more or less easy to identify in different games, which may lead players to play dominant strategies more often in some games than others.

I would like to do so by putting students in the shoes of the player who has a dominant strategy in a series of games in which the dominant strategy is increasingly hard to find.

Note that the game of Nim is excluded because it is neither one-shot nor simultaneous. The games could for example (but do not have to) look like this:

  The other player will choose and integer $y$ satisfying property $P_1$ (e.g., $y$ is contained in some subset of integers). You must yourself choose an integer $x$ satisfying property $P_2$. You win if $f(x,y)$ (e.g., $x+ y$) satisfies property $P_3$.

My question is: can anyone provide a series of games that would do the job?

Desirable qualities of the series are:

Ideally, the series should contain between three and four games.
Games should be easy to explain.
Games should be "truly interactive" in the sense that the other player can actually influence the outcome (no "The other player will choose $y$. You must choose positive integer $x$. You win if $31^3+33^3+x^3 = 76^3$.")
Games should be as "entertaining" as possible (sorry, I know this is subjective).
The progression in the difficulty to find dominant strategies should ideally come from dominant strategies becoming more and more "clever", as opposed to checking an increasing number of "cases" (sorry, I know this too is subjective).
I should be able to explain why the dominant strategy is what it is in class relatively quickly (I.e., ideally dominant strategies should be of the kind "hard to find, but easy to understand once you know what it is")


texts: Why FDI stock in the same year is different in the same reports?

texts:
From World Investment Report 2003, in 2000, the US has 12.4% GDP as FDI inward stock and 13.2% GDP as FDI outward stock. These numbers are equivalent to 1274720 million USD, and 1356960 million USD. With GDP US in 2003 as 10.28 billion USD.

From World Investment Report 2007, in 2000, the shares above are 12.8 and 13.4, respectively.

From World Investment Report 2017, however, in 2000, the US has 2783235 million USD as FDI inward stocks, and 2694014 million USD as FDI outward stock. If we measure in percentage as above, we would have 27% and 26% equivalently.

Why are the numbers are so different? Do I forget something like the price levels or so?

Many thanks for your help.


texts:
In the youtube video Why We Look down on Low Wage Earners the author argued: "economics states that wages are determined [...] by the number of people willing and being able to do a given job that others won't do." (video at 1:00). While this explains much of the variance in the wages of different jobs, it does not give in my opinion a good explanation, why celebrities earn high wages.

Take for example actors. There are a lot of people working in this field and there are many more wanting to become an actor or actress. Due to the quoted theory the wages in this field should be low which is not the case for celebrities. The theory does also not explain the variance of the wages inside this field (compare the median hourly earning of actors / actresses with those of celebrities).

My question: How do economics explains the outliers in the wages in form of the high earnings of celebrities? How does popularity exert an influence here? (Do celebrities get much money because they are popular or are they popular because they are rich?) How does economics explains the different wages for a certain kind of job?


texts: Why is it assumed that covariance equal to $0$ or independence between $y$'s in the simple linear regression model?

texts:
I have started a book of econometrics and in the first pages are stated the assumption used in the linear regression model, which are :

The third one is the one I don't understand, why it has to be assumed? how can be verified if this assumption is not met? My professor explained it with an example : "It is reasonable to say that the expenditure of a family with a certain income is independent of the one from another family with another income". What she says is okay to me, but it doesn't tell nothing about verifying the assumption when I have a set of datas, how can I have tuples of values in the case of the dependent variables $y_i$ and $y_j$ so that I can verify statistical independence or covariance equal $0$ ? Should I have the joint probability distribution of the variables? And why is it useful to assume one of these things, are not just the other assumptions sufficient? Any help is really appreciated.


texts:
The game is described as follows :

In a simplified version of the game Morra each of the players shows one finger or two fingers, and simultaneously guesses how many fingerss the other player will show. If both players guess correctly, or both players guess incorrectly , there is no payoff. If just one player, guesses correctly, that player wins a payoff equal to the total number of fingers shown by both players

I know that this game has to be zero sum but I want to understand well why it is the case, after all one player gains something which teoretically is not lost by the other in the sense that he had it before the game started. In this case, there is a situation in which the player who 'lost' the point could have win them but it is just the case because the game it's simmetric, it not always happens.
I thought about the following abstraction to explain what is happening, say the two players had before starting the game an amount of points so that to cover all the possible negative pay-off for them, and that who wins receives the number of points equal to the sum of the fingers from the other playes, now it seems to me that the game is zero-sum. Otherwise it seems to me that the pay-offs would be possible to be represented by
$$(\text{sum of fingers in the case of first wins something }, 0  )  \text{ or } $$
$$(0, \text{sum of fingers in the case of second wins something} )$$
which would make the game not zero-sum.
Should it be obvious? Am I totally wrong with my reasoning? Why?


texts: Calculating Social Welfare from an Energy Subsidy

texts:
In Allcott and Greenstone's paper, "Is there an energy efficiency gap?", one finds the following figure

I quote now from p. 13:

  "When there are investment inefficiencies, the original marginal
  consumer at quantity q gains amount af from being induced to buy the
  energy efficient good. In fact, there are allocative gains from
  inducing each of the consumers between q and and q′′ to purchase the energy efficient good, as each of these consumers has
  benefits that are larger than incremental cost c. The total private
  welfare gains are illustrated by the triangle abf...These benefits are then
  compared against the costs of the policy. A subsidy involves a
  transfer of public funds to consumers of amount hbjk , as illustrated
  by the shaded rectangle."

My question is rather straightforward: why are the benefits of the subsidy given only by the triangle abf, and not by all of the area between the two lines D and D' above the incremental cost line c? Is it not in fact true that every consumer upto the point j on the line D sees a gain equal to vertical distance between his present position and D'?


texts: Restricting "money creation" to the central bank

texts:
Iceland is considering removing "money creation" from commercial banks.

[Despite the date of the article, I don't think this is a joke, as it has been picked up in other places since without anyone claiming it was a joke.]

I guess that what they are proposing is that borrowing short and lending long based on fractional reserves wouldn't be allowed, and only the central bank would be allowed to issue unbacked long-term loans in exchange for short-term deposits. Commercial banks could fund their own lending with these loans and would make short-term deposits at the central bank to reflect deposits made with them.

What are the advantages and drawbacks of this approach? If it makes sense, why isn't everyone else already doing so?


texts: How can a "producer face a limited market as regards sales and yet a highly competitive market as regards price"?

texts:
Kaldor (1972):

it is evident that the co-existence of increasing returns and competition—emphasised by Young and also by Marx, but wholly excluded by the axiomatic framework of Walrasian economics—is a very prominent feature of de-centralised economic systems but the manner of functioning of which is still a largely uncharted territory for the economist. We have no clear idea of how competition works in circumstances where each producer faces a limited market as regards sales and yet a highly competitive market as regards price.

I don't understand the last sentence. Could someone explain and also provide concrete examples of how it might be possible that a "producer faces a limited market as regards sales and yet a highly competitive market as regards price"?


texts: How do I convert real gdp into chained-dollar real GDP?

texts:
I have quarterly data for real GDP from 1981-2015. I also have quarterly chained-dollar real GDP from 61-2012. I need to have them converted into one series.

I've looked up several different formulas but most of them require a price index. Any help would be appreciated. Thanks.


texts: The theory of Comparative Advantage in production and trade specifies that countries should engage in the production of goods and services for which they have a comparative advantage or lower opportunity cost than others. Do you think this theory can be effectively applied even where there is a wide technological or developmental gap between two countries?


texts: Breaking down components of GDP per capita

texts:
GDP per capita can be broken down into 4 smaller components: Labor productivity, Average hours worked, Employment rate and Participation rate as can be deduced from the following formula:

What I'd like to ask is if there is a way to accurately measure the change in one component/factor if given the change in other components/factors?

Something akin to this:
Suppose that everyone in the population of Country A is employed and equally productive.  If the population grows by a%, hours of work fall by b%, and output per hour grows by c%, then output per person, or output per capita increases/decreases by how many percent?

For the aforementioned example, I tried to do the following calculation but the result came out wrong.
$$
\Delta \text{GDP per capita}=1-(1+c)\times \frac {1-b}{1+a}
$$

For a more concrete illustration, let's assign 5,3,4 to a,b,c respectively, I would get
  $$
\Delta \text{GDP per capita}=1-(1+0.04)\times \frac {1-0.03}{1+0.05}\approx 0.039
$$
which means GDP per capita decreases approximately 4 percent but the result I got from the book is a 1% increase. I'm quite stuck here ...


texts: What is the definition of exogenous and endogenous preferences?

texts:
Wikipedia states:

Exogenous Preference -- one that comes from outside the model and is unexplained by the model.
Endogenous Preference -- preferences then cannot be taken as given, but are affected by individual internal responses to the external state of affairs.

Can someone clarify what these two terms mean? Specifically, what does it mean to be "inside" (or internal) or "outside" (or external) of a model?


texts: Why does the inverted yield curve occur with US Treasury securities?

texts: I have always thought that US securities were considered nearly risk free as the government will almost always pay them back. So why is it the case that investors currently view short term securities as more risky than long term ones?


texts: Event Study - Definition of Estimation Window (Trading Days vs Non-Trading Days)

texts:
I am currently conducting a event study for my research project on M&A. I have all data available and want to use https://www.eventstudytools.com/.
But there is one clear which is not apparent to me from the literature. When conducting such analysis how do you define event and estimation window. Are only trading days counted? So would this mean a event window of 120 days equals around 148 calendar days (120/5*7). This of course would make sense as there is no trading on non-trading days/weekends. But for example instead of dropping those days it would be also possible to assign the value of the last trading day to the weekends.
I couldn't find the right literature to answer this question and hope you guys can help me with this with a little bit background information


texts: Reduced Form of an econometric model, identification problem and test

texts:
Looking for some help to understand the following problem and how to use the reduced form in econometrics

Consider a model for the health of an individual:
$$health = b_0 + (b_1)age + (b_2)weight + (b_3)height + (b_4)male + (b_5)work +
(b_6)exercise + u$$

assume that all variables in the equation with the exception of exercise are uncorrelated with u.

A)Write down the reduced form for exercise, and state the conditions under which the parameters of the equation are identified.

B)How can the identification assumption in part c be tested?

Is it correct to assume:

$$exercise = b_0 + (b_1)age + (b_2)weight + (b_3)height + (b_4)male + (b_5)work +
  u$$ as the reduced form?

and is the condition for identification of parameters simply

$E(exercise|u)=0$

and how can I test it? But moreover what is it good for?


texts: Understanding this particular criticism of RCTs by Deaton and Cartwright

texts:
Deaton and Cartwright make several criticisms of randomized controlled trials (RCTs).
My question is about this one in particular from a 2016 VoxEU piece:

Well-conducted RCTs could provide unbiased estimates of the average treatment effect (ATE) in the study population, provided no relevant differences between treatment and control are introduced post randomisation, which blinding of subjects, investigators, data collectors, and analysts serves to diminish. Unbiasedness says that, if we were to repeat the trial many times, we would be right on average. Yet we are almost never in such a situation, and with only one trial (as is virtually always the case) unbiasedness does nothing to prevent our single estimate from being very far away from the truth. If, as if often believed, randomisation were to guarantee that the treatment and control groups are identical except for the treatment, then indeed, we would have a precise – indeed exact – estimate of the ATE. But randomisation does nothing of the kind, even at baseline; in any given RCT, nothing ensures that other causal factors are balanced across the groups at the point of randomisation.

Similarly, in their accompanying 2018 publication, they write:

It is common to treat the ATE from an RCT as if it were the truth, not just in the trial sample but more generally. ...
the RCT strategy is only successful if we are happy with estimates that are arbitrarily far from the truth, just so long as the errors cancel out over a series of imaginary experiments ...
More fundamentally, we strongly contest the often-expressed idea that the ATE calculated from an RCT is automatically reliable, that randomization automatically controls for unobservables, or worst of all, that the calculated ATE is true. If, by chance, it is close to the truth, the truth we are referring to is the truth in the trial sample only.

I am having trouble understanding or appreciating the significance of the above criticism. It seems to me that the criticism here is analogous to the criticism that can be made of any estimate from a single random sample:

Suppose we get a random sample of a population, measure their heights, and compute a sample average height. Then Deaton and Cartwright's criticism or objection is simply that this sample average height estimate may not be generally true of the population as a whole; that we should be happy with this single estimate only if "we are happy with estimates that are arbitrarily far from the truth, just so long as the errors cancel out over a series of imaginary [samples]".

Does the above analogy describe all there is to Deaton and Cartwright's criticism? Or is there something deeper and bigger that I'm missing?


texts: Perfect risk sharing in Arrow-Debreu w/ the same subjective beliefs over states

texts:
So I'm looking at a 2-agent Arrow-Debreu economy with one good. Consumption and endowments are zero in t=0, and 2 states are possible in t=1 with aggregate endowment in both states equal to 1.

We assume utility is strictly increasing and strictly quasiconcave. My question is this:

My professor says by strict monotonicity

$\dfrac{v^{'}_{1}\left(x^1_1\right)}{v^{'}_{1}\left(x^2_1\right)} = \dfrac{v^{'}_{2}\left(1 - x^1_1\right)}{v^{'}_{2}\left(1 - x^2_1\right)} \Rightarrow x^1_1 = x^2_1$

I can see this is obviously true if $v(\cdot)$ is concave, but we only have strict quasi-concavity. For example $f(x) = x^2$ is strictly convex yet strictly quasiconcave. Since agent 1 and agent 2 are not required to have the same utility function, it is possible for agent 1 to have a convex utility and agent 2 to have a concave one. In short, we cannot say the second derivatives are the same sign without the concavity assumption.

Moreover, wouldn't a counter example be aif $v_i(x) = x$ for $i = 1,2$. Then $x_1^1 \neq x_1^2$ would still imply the ratio holds. Is it then something about an interior solution?


texts: Why can't a country print its own money to spend it only abroad?

texts: If a country prints money and distributes it between the people, it causes inflation. But what if a country prints its own money to spend ONLY abroad, which would allow a country to buy whatever it wants. What's wrong with this logic?


texts: Is there a way to link Berge's theorem of maximum to Envelope theorem?

texts:
Berge's theorem states

  Let $X \in \mathbb R^m, \Theta \in \mathbb R^n $, $f : X \times \Theta \to \mathbb R$ be a jointly continuous function, $C : \Theta  \rightrightarrows X$ be a continuous(both upper and lower hemicontinuous) compact-valued correspondence.The maximized value function and maximizer are
  $$V(\theta) := \max_{x \in X}f(x, \theta)$$
  $$C^\ast(\theta):=\{x \in C(\theta) \mid f(x, \theta )=V(\theta)\}$$
  Then $V : \Theta \to \mathbb R$ is continuous and $C^\ast :\Theta \rightrightarrows  X$ is upper hemicontinuous.

According to Varian's Microeconomic Analysis(1992), page 490, Envelope theorem is simply:

  $$\frac{dM(a)}{da}=\frac{\partial f(x,a)}{\partial a}\mid_{x=x(a)}$$

$x(a)$ is the maximizer of $f(\cdot, a)$.

It seems to me Envelope theorem entails Berge's theorem, but the derivation looks way simpler. Is there a relationship between the two?


texts:
After reading several articles on China losing WTO dispute against EU for market economy status, I could not understand what is the market economy status in this case?
One such newspaper article is here
My question: Does WTO assign economy status?


texts: Mirrlees' 1971 paper (An Exploration in the Theory of Optimum Income Taxation) on optimal taxation can sometimes be hard to follow. Does anybody know of (or could even provide here) a simple sketch of the derivations of the optimal nonlinear income tax schedule in his paper?


texts: International shipping services count as exports?

texts:
A Greek ship owner transports mouse traps from Albania to Japan, making every year ten million Euro in revenue and one million Euro in profits.

The total value of the mouse traps he transports every year is one hundred million Euro. So Albania is exporting one hundred million Euro every year. The ship owner charges 10% of the value of the goods, making a revenue of 10 million Euro (Albanians are paying him that money for transporting the goods to Japan). After paying his expenses: fuel, food, ship repair, taxes, etc., he gets one million Euro in profits.

The question is: does his revenue count as a Greek export? One can argue that Greece is exporting a transporting service so it should count as Greek export.
Also the revenue should count as Albanian imports since they pay an external company for the service.


texts: Why traditional banks tend not to provide finance to the poor?

texts: As in title, quite a simple question - however looking for some more arguments and points of view. Mainly talking about the poor in developing countries, however if some arguments are more "applicable" to the poorer part of the society in already developed countries - would love to read them as well.


texts: Why is the Social Security tax split midway between employer and employee?

texts:
On page 99 of Hidden Order, David Friedman writes:

Social Security taxes are paid half by the employer and half by the worker. How would the effect of the tax change if it
were collected entirely from the worker or entirely from the
employer? Why do you think Social Security is set up this
way?

Earlier in the book, Friedman proved that who actually pays a tax - that is, whether the money comes out of the profits of the producers or is paid by the consumers in the form of higher prices - is not determined by who hands over the money to the government, but whose supply/demand curve is more elastic. That is to say, asking the producer to pay some tax per widget sold is equivalent to asking a consumer to pay the same tax per widget bought. If the demand for the widget is inelastic, much of the tax burden would fall on the consumer and not if the widget has a fairly elastic demand curve.
In light of this fact, it shouldn't matter which way the tax burden of Social Security is split. If the employer had to pay the entirety of the tax, she would pay a proportionately lower salary to the employee; if the tax burden fell solely on the employee, his salary would be higher.
One possible explanation of the present setup of Social Security is that voters don't understand economics. Although this answer works remarkably well as a justification for other inefficient government practices like trade barriers and rent controls, it flies in the face of the "don't attribute to incompetence what can be explained by rationality" principle that Friedman has adhered to throughout the book.
I am not from the US so I could be missing something obvious here, but given what I know I can come up with no better explanation. Any help would be appreciated.


texts: Why is it said that Sweden has a regressive income tax system?

texts:
Quoting from Wikipedia

  Sweden has a progressive income tax, the rates for 2014 are as follows:

  0% from 0 kr to 18,800 kr (~0 – 2,690 USD)
  Circa 31% (ca. 7% county and 24% municipality tax): from 18,800 kr to 433,900 kr (~2,690 – 62,140 USD)
  31% + 20%: from 433,900 kr to 615,700 kr (~62,140 – 88,180 USD)
  31% + 25%: above 615,700 kr (88,180 USD and up)[4]

Why is it said that it is regressive?

E.g.

This post from Washington Post


texts: Wouldn't reducing Fed Balance Sheet lead to Inverted Yield Curve?

texts:
BACKGROUND

I am involved in finance, but by no means an economist. I've been reading Ben Bernanke's "The Courage to Act" and have become interested in QE1 and QE2. Currently, I am trying to understand the Fed's Balance sheet reduction.

NOTE: Apologies if some of my assumptions/questions are misguided

ASSUMPTIONS

QE was a fiscal strategy to lower long-term interest rates
Fed bought Treasury securities and Mortgage-backed Securities to reduce long-term interest rates
Fed is currently looking to reduce Balance sheet to raise long-term interest rates to pre-recession levels (including short-term interest rates)
The Fed is looking to raise short-term interest rates first, then long-term interest rates

QUESTION(S)

If the Fed raises short-term interest rates, but keeps long-term interest rates low, wouldn't this create an Inverted Yield Curve?
Aren't Inverted Yield Curves an indicator of recession?
Why isn't it better to raise on long-term interest rates first, and then raise short-term interest rates?


texts: If all indifference curves are parallel lines, then preference has linear representation

texts:
Given a continuous preference relation $\succeq$ over $X=\mathbb{R}^2_{+}$ where all sets:
$$
I_x\equiv\{y\in X:y\sim x\}
$$
are lines on $X,\forall x\in X$, and are parallel to $I_y,\forall y\notin I_x$.

How can I show that $\succeq$ has a linear representation?

It seems intuitive that if every indifference curve is a line, then the utility itself must be a line, but I'm not sure how to go back to it. Would someone be willing to help me?

Thanks! Any helpful tips are appreciated! :D


texts: Purchasing Power Parity and Baskets of Goods

texts:
On the exact definition and understanding of "purchasing power parity" it depends what it means when the World Bank defines

  the “extremely poor” people of the world as those who are currently
  living on no more than $1 per day per person, measured at the
  purchasing power parity (PPP) exchange rate

as cited e.g. in Duflo/Banerjee's The Economic Lives of the Poor (2006).

According to the Wikipedia article on purchasing power parity

  PPP produces an exchange rate that equals the price of the basket of
  goods at one location over the price of the basket of goods at a
  different location.

Furthermore it is stated:

  The goods that a currency has the "power" to purchase are a basket
  of goods of different types.

So PPP depends on a basket of goods, and it seems to be assumed that there is one such basket. But obviously there is none such unique basket: In different countries and in different socioeconomic strata there are very different "typical" baskets of goods - so how to compare these, across countries and strata?

In other words (and trying to be specific): What exactly does it mean (according to the official definition) when it is for example said that an Indian farmer (let his name be Kalu) in the state of Rajasthan who

exhibits typical consumer behaviour (= has a typical basket of goods, including spendings on religious festivals)
is partially self-supplying
does a second job as a tourist camel guide
does a third job as a quarryman
has a monthly income of 10,000 rupies (averaged over a year)

lives on $X per day (measured at PPP exchange rate)?

But first of all:

How exactly would I calculate X - given the information above + the
size/structure of his household?


texts:
I am reading about exchange economies and ran across something that is counter intuitive.

How is it that in an exchange economy with no production that a person can make himself/herself better off by destroying a portion of his or her endowment? If there is no production how, in the long run, is a person better off destroying some of the available resource if that resource can't be replaced etc.?

Can anyone illustrate this in a simple manner to help with the intuition?

I know that if there could be some way that destroying a bit of a resource can drive up prices such that the remaining quantity is now more valuable than the original quantity at original prices. Is that what is happening here? If so, why and how?


texts: Causes of interlocking directorship connections between firms

texts: I need to interpret some empirical results telling me that firms (intended as profit-maximising entities) prefer to be controlled (e.g. through interlocking directorships) by smaller and less profitable companies. I couldn't find any piece of literature helping me in this sense. Do you have some advice on that? Any hint would be really appreciated.


texts:
In Estimates of the Economic Return to Schooling from a New Sample of Twins by Orley Ashenfelter and Alan Krueger, they correct sampling error with an IV. They claim that their results imply a larger effect of education on earnings than what was found before.

Each respondent has a twin. Each respondent is asked how much money they make, which has inherent sampling error. Then, the respondent's twin is asked how much money the first respondent makes. That estimate is used as an IV, and together they reveal the true income of the first respondent.

Can this work for revealing how many pennies are in a jar? Or how much a person likes a political candidate?

Or how does this work? I see this as magic. If I want to get the truth about something, I just have to get a second opinion?


texts: What would be the practicality of a widespread open-source approach in an economy?

texts:
I'm not sure how to tag this so feel free to add any tags you see as relevant.

The question here is about anything that uses a proprietary approach today and applying open-sourcing to it.

What if someone open-sourced their work in such a way that it can be used by absolutely anyone on condition they put a bit of money in to keep a project going?

This instead of intellectual property or copyright sometimes heavily restricting usage and where there is not necessarily a benefit to the community.

Hope you get the gist and please comment below for me to clarify if necessary.


texts: Signaling questions (separating equilibrium)

texts:
Consider two firms

Inverse functions: $p(q)=max\{a-q,0\} $

$q$ is total production and a is positive constant.

This value of a takes two values ah=2 (high demand) and aL=1 (low demand). Their probabilities are equal (1/2) for each cases.

Firm 1 know the value of a,  but firm 2 don’t know.

Firm 1 = incumbent

Firm2 = entrant

Firm 1 move first. Firm 2 observe firm 1’production $q_1$ before deciding $q_2$ and then move.

For all firms, marginal cost and fixed costs are zero.

Considering firm 1’s incentive to signal the state of the world, describe the set of separating equilibria.

————

What I have solved:

Case 1:no signaling

Firstly consider the firm 2,

$$\pi 2= max [ (1/2)(ah-q_1^H-q_2)q_2+(1/2)(aL-q_1^L-q_2)q_2]$$

By FOC:  $$q_2^*= {3-(q_1^L+q_1^H)\over 4}$$

Now consider the firm 1. There are two states: ah and aL

State 1: $a=ah=2$

$$\pi_1^H = max [ (ah-q_2-q_1^H)q_1^H]$$

where $$q_2^*= {3-(q_1^L+q_1^H)\over 4}$$

I insert this $q_2$ into maximization objective function

By FOC:

$5=6q_1^H- q_1^L$         $\ \ $(Equation 1)

State 2: $a=aL=1$

$$\pi_1^L= max [ (aL-q_2-q_1^L)q_1^L]$$

where $$q_2^*= {3-(q_1^L+q_1^H)\over 4}$$

I insert this $q_2$ into maximization objective function.

FOC:

$6q_1^L+q_1^H=1$ $\ \ $(Equation 2)

When I combine the equations (1) and (2), I obtain that

$$q_1^H+q_1^L=6/5$$
And $q_1^H=31/35$ and $q_1^L=11/35$

$$q_2^*={3-(6/5)\over 4}=9/20$$

When I calculate the profits

$$\pi_2=81/400$$

$$\pi_1^L>0$$

But

$$\pi_1^H<0$$

  my first problem is at this point. Why I obtain $\pi_1^H<0$ this profit negative value. This is wrong,  but I could not find my mistake.

Case 2: signaling exist

Consider the firm 2

$$\pi_2 = max [ (a-q_2-q_1)q_1]$$

By FOC, $q_2=(1/2)[a-q_1]$

Now consider the firm 1,

$$\pi_1= max [ (1/2)(ah-q_1^H-q_2)q_1^H+(1/2)(aL-q_1^L-q_2)q_1^L]$$

S.t.

$(IC_H):\ $ $(ah-q_2-q_1^H)q_1^H> (ah-q_2-q_1^L)q_1^L$

$(IC_L):\ $ $(aL-q_2-q_1^L)q_1^L> (aL-q_2-q_1^H)q_1^H$

$(PC_H):\ $ $ (ah-q_2-q_1^h)q_2>0$

$(PC_L):\ $ $ (aL-q_2-q_1^L)q_2>0$

Solutions

$IC_G$ must hold because firm 1 cannot deviate.

$PC_L$ must be biding because the firm 2 cannot earns negative profit.

By $IC_G$ and $PC_L$, $PC_G$ is automatically satisfied.

So the optimization problem becomes

$$\pi_1= max [ (1/2)(ah-q_1^H-q_2)q_1^H+(1/2)(aL-q_1^L-q_2)q_1^L]$$

S.t.

$(IC_H):\ $ $(ah-q_2-q_1^H)q_1^H> (ah-q_2-q_1^L)q_1^L$

$(PC_L):\ $ $ (aL-q_2-q_1^L)q_2>0$

Lagrangian

$L= [ (1/2)(ah-q_1^H-q_2)q_1^H+(1/2)(aL-q_1^L-q_2)q_1^L]+ \lambda [(ah-q_2-q_1^H)q_1^H- (ah-q_2-q_1^L)q_1^L]+\mu [ (aL-q_2-q_1^L)q_2]$

FOCs

(I) $dL/dq_1^L=0$

(II) $dL/dq_1^H=0$

(III) $dL/d\lambda\ge 0$ and $(dL/d\lambda)\lambda=0$ For $\lambda \ge 0$

(IV) $dL/d\mu\ge 0$ and $(dL/d\mu)\mu=0$ For $\mu \ge 0$

It must be that $\lambda \ge 0$ and $\mu \ge 0$ such that constraints are binding.

By (III) and (IV), $q_1^H=2$ and $q_1^L=2$

    my problem about signaling case, the values of q1 doesn’t not hold with the answers of solution manual  book that gives only true value. Where is my mistake in mysolution? I could not find my mistake. Please give me a hint.

I wrote my solution and the points that I have trouble in yellow box. If need more clarification, I immediately add something. Please help me. Thanks.


texts:
Recently, I read a news article stating

  Indiabulls Housing Finance shares plunges on reports of litigation against company

Why do shares plunge when company finds itself in a litigation process? How does litigation affect the profitability of a firm?


texts: Relationship between Nash and Coasian bargaining solutions

texts: What is the relationship or difference between Nash and Coasian bargaining solutions? It is well-known that the Nash bargaining solution satisfies certain basic axioms. Which of these does the Coasian solution satisfy? Is the Nash solution applicable when there are externalities, and are the two solutions same/comparable in any sense?


texts: A question on the accuracy of economic forecasts

texts:
I apologise if thi's question appears dumb or boring, but I am asking it as a lay person. The context is that I am always arguing with friends that they should trust the economists view that Bexit (Britain leaving the EU) is bad for Britain. They counter by saying that economist get their predictions wrong. I even saw a documentary that suggested this, which I don't believe. I tried googling my questions but could not find helpful answers.

So my questions are:
What is the truth about economic forecasts, and are economic models able to accurately predict the economic  effects of Brexit?

Are there any good links to sources showing  the relavant models and how accurate they typically are at making predictions. It would be great if I could just say;: here's the evidence!

Again, I apologise if these are dumb questions to an expert. But my motivations are positive in that I am trying.to get people to trust the expert's,  i e  economists.


texts: Does labor mobility create a certain type of market failure?

texts:
Oxford professor Ewart Keep writes in a paper titled Market Failure in Skills (p. 3) that

  For firms there is the
  problem of investment in
  staff who may leave taking
  their skills with them.

Some of the historical solutions to this problem involve limiting the mobility of the labor force, ranging from slavery, indentured servitude, and more recently some kinds work visas that are only valid for one employer.

So in this sense, some human rights are bad for markets, leading to certain kind of market failure. Is this view uncontroversial among economists? And a complementary question: can measures that limit worker mobility also result in other way in market failure?


texts: List of important business and economic news events between 1850 and 1930?

texts:
I'm collecting data on important business and economic news dates in the late 19th to early 20th century. The only list I found is this: https://www.encyclopedia.com/history/news-wires-white-papers-and-books/1878-1899-business-and-economy-chronology. I'm trying to identify dates in which there were important news for the U.S. stock market.

Does anybody know of any other sources? Perhaps another encyclopedia, a news article, or an academic paper?


texts:
Recently I was reading up on Adam Smith's economic philosophy of competition (i.e self interest) and division of labor.

While I understand (and agree) with Smith's commentary that free markets and division of labor spur innovation, production, and general well-being of the average individual, it appears that there isn't commentary on wage gaps.

I would assume that through specialization (and self interest) some labor is more valuable than others (e.g CEO salary vs factory worker salary). Couple this with competition and I would expect wage gaps to quickly form.

Does Adam Smith ever address the issue of self-interest, competition, and division of labor and any potential wage gaps that post risk to a healthy economy?


texts: Where can I look up a companies Herfindahl index?

texts: Where can I find Herfindahl indexes on companies (current or past)? Are there any published lists put out by a research institution?


texts:
Is there a term for an externality in which prices for a good go up due to consumers being subsidized to purchase or consume that good?

So for example, let us say that the government covers part of your medical costs, and in response, private clinics raise their prices because they estimate that they can charge what they were before and then-some, proportional to the added subsidy provided by the government.


texts: Why do firms losing money almost always reduce labor costs via layoffs instead of pay cuts?

texts:
At least in the United States, firms seem to almost always reduce labor costs via layoffs rather than pay cuts. Pay cuts are so rare that they're literally headline news. From an economic standpoint, if workers are being paid more than their marginal product, then either solution fixes the problem - layoffs boost marginal product to match the old wage, while pay cuts lower the wage to match the new marginal product.

But it seems to me that a pay cut is better for both the employer and the employee. From the employer's side, when times get better they don't need to bring in a bunch of inexperienced new employees to replace the ones they laid off. From the employee's side, they still make some money rather than no money, and they are free  to leave the company if they can find sufficiently higher pay at another firm to compensate for the inconvenience of switching jobs. Personally, I would always prefer to be offered a pay cut than laid off, and apparently over 90% of workers feel the same way. So why are layoffs so ubiquitous?


texts:
I am interested in a (reasonably) quantified explanation of why the work week in most of the world is 40 hrs and not for example 20? How did we arrive to the number 40.

Another question is, and here I understand I can't expect quantification so much, is why there are more part time jobs available in the low income range (menial work) but not so much among knowledge workers? For example, I am a software engineer living in a major metropolitan area, still finding part-time work is very hard. Seems like everyone wants full-time employees or at least contractors.

I am perplexed by this state of the labor market and would like to learn some perspectives on this from schooled economists.


texts: Is elasticity of substitution between goods empirically constant?

texts: In New Keynesian models, we use a lot of CES assumption, usually Dixit-Stiglitz, to develop an economic model. Is CES, constant elasticity of substitution between goods, empirically (approximately) true?


texts: Is there a source which informs the public of who is buying up newly issued U.S. Government debt?

texts: Is there a list somewhere of who is buying the newly issued debt that will finance the American Rescue Plan (the $1.8 trillion stimulus package signed recently)? Of course, I have an idea of who owns the current stock of US Government debt, but is there a source which provides information on who is currently buying?


texts: Percent change vs difference in logs: Which to prefer when forcasting non-stationary series with rare large excursions?

texts:
One of the most common ways to convert a non-stationary time series into a stationary one is to take the difference in logs. This is approximately equal to the percentage change for small changes, and has the advantage of being unitless, and also that the percentage increase and the percentage decrease is the same when using this approximation, which is often convenient.
Suppose I wish to do forecasting of a series. Suppose further that when I look at my data I see that the average absolute percentage change is quite small, less than half a percent, but that the maximum change is up around 10 or 12 percent.
In this setting, to minimize forecast error, should one still use the difference in log transformation? Or should one calculate the actual percentage change in the independent and dependent variables, and use that instead?


texts: Resources for mathematician trying to develop (macro)economic thinking?

texts:
I have a 'hobbyist' interest in economics (read several popular science econ books and listen to a lot of podcasts).

Recently I've been trying to take this further by looking at courses in economics. I have a strong maths background (PhD in stats), and I find a lot of early undergraduate courses interesting, but they often seem to ignore the underlying maths, so feel like they are missing out some important detail. On the other hand, I find graduate level courses a good level but feel like they don't build my economics 'intuition'; which I get the impression is very important to develop economic thinking.

My question is are there any resources that offer a good balance between the two? I'm particularly interested in macro, but any micro resources would also be interesting.


texts: Gross interest rate ($R$) v. Net interest rate ($R-1$)

texts:
I am reading a macro-finance article that deals with asset financing.

While it defines the gross interest rate to be $R$, it defines the net interest rate to be $r\equiv R-1$. In equilibrium, the interest rate on one-period loan is said to be $R=\frac{1}{\beta}$, where $\beta$ is the discount factor applied to the dividends firms obtain over an infinite horizon.

$\textbf{My Question}:$ How do you interpret the difference between $R$ and $r$? Is it conventional to define net interest in macro-finance literature in this way?


texts: How can consumption taxes be made progressive?

texts:
Consumption taxes (VAT, sales tax) are mostly applied at a flat rate. Some countries have exemptions or lower ratings for essential goods. But even with that, the tax is much less progressive than other taxes, like income tax.
There have been some suggestions that countries should move away from income tax and corporation tax and generate most revenue from consumption taxes. I just mention this as background, I know there's no clear consensus, and my question is not about that.
If consumption taxes were used more than income tax, how could these be made progressive?
Edit: I did some searches for progressive consumption tax and found this article that is most promoting a book and presupposes knowledge of terms like Flat Tax. Wikipedia on X Tax is interesting but brief. Further elaboration would be informative.


texts: Slutsky equation with marshallian demand

texts:
We have marshallian demands for goods 1 and 2:

$x_1^* = \frac{I}{2p_1}$  and $x_2^* = \frac{I}{2p_2}$
where $I$ is income and $p_i$ is price.

We need to solve the slutsky equation for income effect and substitution effect as such:

$\frac{D (x_i)}{D (p_j)} = \frac{D(H^i(p1, p2, i))}{ D(p_i)} - x_j*\frac{D(x_i^*)}{D(I)}$

So in balance marshallian demand is the same as the compensated demand.

I solved the left hand side of equation and got a result of $0$.

Then I moved on to the income effect and got the following result:

$-\frac{I}{2p_j}*\frac{1}{2p_i} = -\frac{I}{4p_jp_i}$

Substituting the results from above in to the slutsky equation gives a positive result for substitution effect. I thought that that the substitution effect is always negative. Can anyone help me out?


texts: Common Knowledge and the Red Hats Puzzle

texts:
Here is a puzzle that is supposed to help illuminate common knowledge in game theory. Three girls are sitting in a circle, each wearing a red or white hat. Each can see the color of all hats except their own. Now suppose they are all wearing red hats.

It is said that if the teacher announces that at least one of the hats is red, and then sequentially asks each girl if she knows the color of her hat, the third girl questioned will know her hat is red. I understand the reasoning there. The first must have seen at least one red hat on the other two to say I don't know. And the second girl must have seen a red hat on the third, or else she would deduce that the first girl saw a red hat on her.

What I don't understand is the necessity of the teacher. Everyone knows there is at least one red hat. And, if we start with common knowlege, they should figure out that everyone else knows that. So is the teacher only introduced if common knowledge is not an assumption?

Source: http://cowles.econ.yale.edu/~gean/art/p0882.pdf


texts: Relationship between short-run marginal cost(SRMC) and long-run marginal cost(LRMC)

texts:
While reading Intermediate Microeconomics from Hal Varian, I fell short in understanding the relationship between SRMC and LRMC. I can see how in SR, when fixed factor is chosen at LR optimizing condition, then

                         c(y) = cs (y,k(y))

where, k is the fixed factor.

But at pg. 394 of 8th edition, in Appendix to Ch. 21 (Cost Curves), author writes,
"...the long-run marginal cost will consist of two pieces:
how costs change holding plant size fixed plus how costs change when plant size
adjusts. But if the plant size is chosen optimally, this last term has to be zero!". This is what I am unable to understand, how the 'second' term is zero!

Please, help me understand both intuitively and through calculus.


texts: I am looking at the graph of JNK and SPY prices close prices since 2008.  From 2008 to 2011, the two prices seem to move together.  However, somewhere in the beginning of 2012, the prices all of a sudden began to move in opposite directions.  Does anyone know the reason for this?  A picture is provided below.


texts: Would this hypothetical firm exit in the long run?

texts:
I'm trying to work out the following problem for my microeconomics course, using the standard method we have been taught.

Problem: Output is a function of inputs $x_1$ and $x_2$, $y=x_1^{1/2}x_2$. Total cost is a function of inputs $x_1$ and $x_2$ and their corresponding prices, $w_1=3$ and $w_2=2$, $c=3x_1+2x_2$. The price at which output can be sold is $p=6$. What is the profit maximizing level of $x_2$ for the firm to use in the long run?

Attempt: In the long run, the profit maximizing level of $x_2$ is found by solving $p\times MP_2=w_2$. That is, $6x_1^{1/2}=2$. But, $x_2$ is no longer a variable in this equation! This leads me to believe the firm will exit, meaning $x_2=0$, but I cannot think of how to relate the economic theory to the mathematics.


texts: Fill out Normal-Form Game to obtain exactly one mixed equilibrium

texts:
I'm given the following incomplete Normal-Form Game:

 | L | R
+--------
O|1,?|7,?
U|?,2|?,1

First I was asked to fill out the missing pieces to obtain a game with exactly two Nash-Equilibria in pure strategies. I came up with:

 | L | R
+--------
O|1,0|7,7
U|2,2|0,1

The next question is to fill out the table to obtain a game with exactly one mixed strategy and I'm stuck at this point on how to approach this.


texts: Why does a loose Fed policy reduce the downward pressure on the currencies of emerging markets?

texts:
To start off, my background is not in economics but in Computer Science. I recently read in the Economist that a looser Fed policy removes downward pressure on the currencies of emerging markets.

Is this because a looser Fed policy makes investment in riskier emerging markets more likely due to the higher rewards in those markets? And if this is the case, how does this impact the currencies of those markets? I would really appreciate some guidance in understanding the above claim.


texts: About marginal cost setting on Jordi Gali's work

texts:
I'm studying Gali's work with the paper(or book?) which is
"Jordi Gali, Monetary policy inflation and the business cycle_An introduction to the new keynesian framework(2015)" and wonder one thing about setting marginal cost of a firm.
On the paper chapter 3 THE BASIC KEYNESIAN MODEL, with respect to the behavioral principal of firms, he suggests an individual firm’s marginal cost in terms of the economy’s average real marginal cost as

but I cannnot understand why the first equality works since I have been teached that w/p=mpn in general.
Anybody who let me know the solution idea to solve it??
thanks in advance.


texts:
Where do transfer payments (unemployment subsidies, etc.) enter in the multiplier formula for the IS curve?

The usual multiplier is of the form $\frac{1}{1-c(1-t)-m}$, where $c$ is the marginal propensity(m.p.) to consume, $m$ is m.p. to import, and $t$ is the tax rate. I've tried to see $t$ instead as net transfers rate, i.e. transfer payments minus taxes. But I'm not sure if it's the right way to think about this...

Any help would be appreciated.


texts:
Farmer Smith's cattle wander into Farmer Jones' land once a month and cause $\$3,000$ of damage. If Smith reduced the size of his herd by half it would reduce the damage by half but it would also reduce his profits from $\$7,500$ to $\$3,500$. If Smith left the cattle business entirely, he would lose the entire $\$7,500$. If the two parties could negotiate at zero transactions cost, what would be the resulting size of the herd? If there are large transactions costs, Jones hires a lawyer and sues Smith for damages. You are the local judge. Should you allow Jones to collect damages from Smith? If so how much would you award?

I have this question. And I give the following answer. But I am not sure whether this following answer is enough or there are some mistakes.

If there are no transaction costs, then smith pays jones $3000 as compensation since it is profitale for him to do so. Notice that if he cuts his herd to hald, he loses 3500 and earns 4000 but if he pays up for the damages i.e. 3000 dollars he earns 7500-3000=4500 , i.e. he still earns 500 more in this situation.

Now the transaction cots are high. Yes I would allow jones to collect for the damages from smith since that way I am maximizing the society's payoff i.e. I am making Smith internalise the cost of damages that he has caused. I would tell smith to give $3500 to jones because

a. compensation to the damages

b. pay up the transaction costs

c. make him indifferent between cutting his herd to half and keeping the whole herd since this will mean no profit no loss situation which maximizes surplus of the society.

What do you think? Please share with me. thank you.


texts:
The aim of this question is to better explore the mathematical economics model behind Ricardo's theory of comparative advantage and the claims that can be made based on this model. This seems necessary because of this question and some of the answers given to it. Following is a description of the model as I understand it.

Suppose there are two countries (England and Portugal, denoted by E and P) producing two goods (good x and good y). The only input needed to produce these goods is labor. The economics of scale are constant in both industries of both countries and the labor requirement to produce good $m$ (where $m \in \left\{x,y\right\}$) in country $i$ is denoted by $a_{m,i}$. Without loss of generality I will assume that England enjoys comparative advantage in producing the good $x$, meaning
$$
\frac{a_{x,E}}{a_{y,E}} < \frac{a_{x,P}}{a_{y,P}}.
$$
Let us denote the size of the English labor pool by $L_E$, that of the Portuguese by $L_P$. Denote the produced quantities by $\left(q_{x,E},q_{y,E}\right), \left(q_{x,P},q_{y,P}\right)$. So England may choose any production $\left(q_{x,E},q_{y,E}\right)$ as long as
$$
q_{x,E} \cdot a_{x,E} + q_{y,E} \cdot a_{y,E} \leq L_E.
$$
The income of a country is determined by the value of its production. Denote the equilibrium prices by $p_x, p_y$.

Now follow some assumptions that do result in some loss of generality, but I think these are necessary for simple illustrations.
Assume that the English public's consumption (denoted by $c_{m,E}$) preferences of said goods, $\left(c_{x,E},c_{y,E}\right)$, are described by symmetric a Cobb-Douglas utility function. Assume the same for Portugal, where Portuguese consumption is denoted by $\left(c_{x,P},c_{y,P}\right)$.

A discussion of how England can maximize her profit is probably useful, but I seek to focus on the following claims and whether they are true given this model:

England will always produce good $x$ (in some positive quantity).
England will never produce good $y$.
England will never export good $y$.

In case you are wondering: No, this is not a homework question. But because you do not have to take my word for this I tried to phrase the question in accordance with the current guidelines for exercises.


texts: Which academic paper does this diagram come from? Need to know for citation purposes. Apparently its King and Rebelo (2005) but doesn't seem to be the case.


texts: Why obligation acceleration triggers Credit-Default Swaps (CDS)?

texts: ISDA Credit Event definitions state that CDS can be triggered in an event of Obligation Acceleration. What does that mean? If for example, a country pays a bond 1 year prior to maturity are CDS triggered?


texts: Microeconomics and management science of professional open source companies?

texts:
Are there research (and stories more broadly) about professional open source companies? To what types of products their are appropriate, what licensing schemes to choose? How to managed patents and IP? How to motivate and build HR and how to attract volunteer community? How to involve academia in the project? How to organise ownership and how to achieve profitability? What is the past performance of the professional open source companies - what success stories and what failures, what are lessons learned?

This question seems to be quite broad, but the subject is nascent and therefore narrow. That is why this question is focused and narrow as well.


texts: relation between the demand function and the marginal utility function

texts:
Can one say that the demand curve equals the marginal utility function? I have one course where this is stated.

However, the demand curve dan be derived from combining the utility function with the budget curve, while varying the price of the one good of interest and plotting the corresponding quantities found from the equilibria in the goods space and the budget curve.

While I do understand this method, I don't understand how the demand curve can be seen as the marginal utility function using this method (or any unknown other).

Please enlighten me :).


texts: Why is national debt bad if the central bank can keep buying bonds?

texts:
When I read about national debt, it's usually about how debt is bad because with too much debt, debtors would demand higher interest rates. Eventually the government can't pay the interest, defaults, and the economy collapses.

However not discussed is why the central bank can't just step in and keep lending money to the government. It's not like the central back doesn't already do that - according to this article, 27.6% of the US national debt is currently to another arm of the government. But if the central bank can just keep buying government bonds, the government can also force the interest rate on its debt as low as it desires (just get the central bank to buy more bonds), not to mention deficit spend to its heart's content. And if the government is able to do that, then national debt isn't a problem at all!

It seems to me that there's only a problem if 1) the country doesn't have a central bank or 2) you're using another country's currency (e.g. for members of the Eurozone). Am I missing something?


texts: Is the lack of information on customer behaviour good for banks?

texts:
Discussing chapter 18 on Microeconomic Theory Basic Principles and Extensions - Nicholson and Snyder book - regarding Asymmetric information a student raise an interesting point of view regarding the available information on credit utilization, defaults and so on. According to him, in Brazil, the information from each customer (e.g.: if he has already defaulted anytime during his life) is not available and this is also because banks do not want. He mentioned that banks would have to provide better prices and fees for customers with a good historical behaviour on the use of credit lines and bank products. However, I was thinking and if we consider the capital ratio of a bank, provisioning and other charges banks has to deal with due to the lack of information of their clients, there would be a trade off. And banks wouldn't have great benefits from this lack of information on customers behavior. Additionally, banks could charge a reasonable interest and fees from all customers even if they know the probability of default of the customer is low.
How does this work in other countries? Is the student opinion reasonable?


texts: Can the Certainty Equivalent be negative?

texts:
I am questioning if the CE of a lottery can be negative? For me it doesn't make much sense by definition.
I encountered this problem on the following exercise:
Imagine a case where we have a lottery(like the EuroMillions) with a price ticket of €2.5. By construction we win €13m with a probability of 1/139,838,160 and we loose with probability (1- 1/139,838,160).
Imagine that the utility function is $U(x)=-e^{(-x)}$.
I compute the CE as you can find in the picture. Is this wrong? How can I interpret it?

For the lottery with the prize of €13m, and let $n=139,838,160$:
$$U(x) = \left(\frac{1}{n} \cdot e^{-(13,000,000-2.5)}\right) + \left(\frac{n-1}{n} \cdot e^{-(-2.5)}\right) = -12.182$$
Therefore
\begin{align*}
U(CE)=-e^{-CE}&=-12.182\\
\ln\left(e^{-CE}\right)&=\ln(12.182)\\
CE&=-2.49999
\end{align*}

I hope it is clear.
Thanks a lot!


texts: Name of phenomenon where migrant workers receive decent wage but absolutely no chance of getting any government benefits

texts:
Not sure if the title reflects the question very accurately but my question is specific to the Gulf countries which have a huge population of migrant workers, like Saudi and UAE. So, let's say Raj is an expat living and working in RandomGulfCountry with his family. He has a decent job which also pays for a modest apartment and for his kids to go to an okay-ish school. The economic activity created by Raj brings in wealth for the RandomGulfCountry government which then uses it to fund free healthcare, education, utilities etc. that is accessible by only its citizens. It is literally free because there's no income tax (at least for citizens). Most citizens don't really 'work', as they either own the companies or are employed in high positions because of a law requiring a quota of employees to be citizens so they're just figureheads; meaning most of the economic activity is created by expatriates like Raj.

Now, Raj could access these programs but becoming a citizen is almost next to impossible. But Raj is still happy, his job in RandomGulfCountry is paying 5x the salary he'd have gotten back in his home country. However, his continued residence in RandomGulfCountry is at the mercy of his employer. If he gets fired and doesn't find another job soon he has to leave, there is no path to permanent residence or citizenship. The government also charges a high fee for renewing his residence permit and that fee increases with the number of family members staying with him.

So by continuing to work in RandomGulfCountry, Raj is effectively subsidizing the social programs which he can never access. He still has to pay his utilities bill while the citizens don't have to. He has health insurance from his employer but he still has to pay his co-pays while citizens don't need to pay a single penny. Raj still has to fund his own kids higher education but the fruits of his labor go into funding RandomGulfCountry kids to go study abroad for college without them having to pay a single penny.

This example might be a bit too simplistic and people like Raj are very privileged unlike most of the actual migrant workers in the Gulf. So I want to know what is the most appropriate term for this phenomenon, where you contribute to a foreign economy directly and your productivity is exploited to increase the luxury of the citizens who already live quite luxuriously and you never have a chance to receive any of the benefits because you will always be considered a temporary resident.

I was thinking something like wage slavery but you do get good wages, just not the full outcome of your productivity I guess? While it takes into account the fact that you're at the mercy of your employer for your continued well being, it's not really the wages that are responsible for your well being. Also what term would also take into account that the foreign government not only exploits you but also charges you to stay in the country?


texts: If Lebanon has a shortage of dollars, are USD donations meaningless?

texts:
I was reading about the dollar crisis in Yemen the other day, which mentioned that even people who owned dollars couldn’t withdraw them.
If the situation with Lebanon’s currency is similar, what effect does that have on donations of USD to Lebanese organizations that don’t bring in new paper currency?


texts:
The period of the business cycle in which the real GDP is increasing is called the?

And no, this is not an homework question. I'm a college student and we starting our exams soon. I'm just going through a lot of questions. Both online and previous year's questions from my school. This is quite confusing. I think it is expansion. Then I saw an article on trough on wikipedia that says it is trough. https://en.wikipedia.org/wiki/Trough_(economics)
 Please explain


texts: Are there economic journals which are keen to publish puzzling empirical observations?

texts:
In his book "Patterns of Speculation: A Study in Observational Econophysics"(2002) Bertrand Roehner makes a bold assertion:

Physical journals welcome all kinds of experimental observations, especially if they are puzzling and cannot be explained by existing theories. Recent illustrations are the numerous papers about avalanches in sandpiles. Economic journals, on the contrary, are very reluctant to publish empirical observations, especially when they have no clear interpretation within the existing theoretical framework.
Another feature of great importance is the small volume of economic journals:
the total number of pages published annually in physical journals is probably of the order of 10–20 times larger than for economic journals. As a result the acceptance ratios for papers in economic journals are between 5 percent and 25 percent, which in turn induces authors to write on the most fashionable topics in the hope of raising the interest of referees, rather than to pursue an original and consistent research project.

Was he right? Has the situation changed since 2002?  Are there economic journals which are publishing puzzling empirical observations, i.e. those observations which have no clear interpretation within the existing theoretical framework?


texts: Cobb-Douglas production function, given $w$ get $r$ regardless of input levels. Why?

texts:
There is a market economy with technology given by:

$$Y = K^\alpha L^{1-\alpha} \tag{1}$$

Firms behave competitively and input prices are:

$$r = \alpha K^{\alpha-1}L^{1-\alpha} = \alpha(\frac{L}{K})^{1-\alpha} \tag{2} $$

$$w = (1-\alpha) K^\alpha L^{-\alpha} = (1-\alpha) (\frac{L}{K})^{-\alpha} \tag{3}$$

I can solve for $\frac{L}{K}$, and obtain the following expression:

$$r = \alpha (1-\alpha)^{\frac{1-\alpha}{\alpha}}w^{\frac{\alpha-1}{\alpha}} \tag{4}$$

Which is a function that links the prices independently of the inputs combination.

1) Is this correct?

2) What is the economic interpretation of the last result?


texts:
Hi I was given the following price vs quantity values.

Price   Quantity Demanded
4   221
5   210
6   185
7   162
8   144
9   122
10  102
11  81
12  61
13  46
14  25

The graph was plotted as shown below.

The equation was, $Y = -0.0496 X + 15.133$. What I need to know is, I was asked to find the PED when price is $\$7.5$.

Then what I did was, I found the quantity at price $7.5$ substituting to the price quantity equation. And then found the PED using the equation

The quantity derived for price $7.5$ was $153.89$. Then I calculated the PED as below. Is it correct?

$$\frac{(153.89-144)/144}{(7.5-8)/8} = 1.099$$

May I know whether this calculation is correct?


texts: why in some countries trade deficits for a few years generates economical crisis and in United States 40 years of deficit hasnt?

texts: why in some countries (e.g. Argentina) trade deficits for a few years generates economical crisis and collapse and in United States 40 years of deficit havent? Which are the economical effects in both countries and why they are different?


texts:
I am working in a New Keynesian context so that the Phillips curve is usually specified as follows
\begin{gather}
\pi_t=\beta E_t\pi_{t+1}+\kappa x_t
\end{gather}
where $\beta$ is the discount factor, $\kappa$ is the slope of the curve depending negatively on the degree of price stickiness in the economy and $x_t=y_t-y^N_t$, with $y^N_t$ is the natural (potential) level of output

What is driving me crazy is if this curve, specified as above, still make sense when we assume prices are fully flexible.

I would say no, because in a flexible price context, the output gap would be zero and the firms would optimize in a static fashion (no need of taking into account expectations of future inflation). But, I have no idea about how to "transform" the model in this direction.


texts: Solow Model with a Capital Stock Externality

texts:
Suppose we have the following form of the Solow Model: $$ Y_t=K_t^{a+b} L_t^{1-a} $$ where a,b >0, and a+b<1.

Is it possible to determine the steady state growth rate of k (k=K/L), and the steady state growth rates of MPL and MPK?


texts: Using capacity share instead of quantity market share in demand estimation (BLP)

texts: If I were to use capacity share (as a proxy of quantity market share) in a demand estimation setup (such as BLP), are there ways to deal or interpret the measurement error? I would consider this question answered if someone could point to a paper in which something similar was made.


texts:
Utility function is

$U(c_t,l_t)=(1-a)ln(c_t)+aln(l_t)$

$l_t$ is leasure time

$c_t$ is consumption

Production function is $y_t=k_t^e(1-l_t)^{1-e}$

$k_{t+1}=i_t+(1-\delta )k_t$

where k is capital delta is capital depreciation rate. i is investment.

My question is

when a=0, would economy accumulate more physical capital? Why?

——

I think that, when a=0, agents get utility only from consumption. They don’t get utility from leisure time so they have a more tendency to work. So output increases, which leads to capital accumulation.

Does this make sense? How can more correctly interpret this?

—-

In addition to interpretation, I have essentially following question

I derive optimal physical capital equation for delta=1and for the maximization problem

$$v(k_t)=max\sum B^tu(c_t,l_t)$$

$$k_{t+1}=Bey^*_t$$

But I could not demonstrate this is locally stable.

Please give me a hint. Thanks.

If you want, I can write my solution in detail.


texts: Why a bank never combine all benefits/promotions and issue a single Credit Card

texts: Bank today issues multiple type of Credit Cards with different promotions linked to them. Any reason stopping a bank from issuing a single card with combined benefits/promotions, wouldn't that be more consumer friendly resulting more customers and spending?


texts: Why is the nature of graph of utility function different from indifference curve?

texts: I am new to Economics, but I have this doubt. The indifference curve and utility function both have the same equation, so their graph must also be similar, which is true I guess. Then why is it that the nature of graphs are different? I mean why is it that if the indifference curve is convex then utility function is quasi concave?  How did we arrive at this conclusion?


texts:
\begin{align}
 V(W)=\max\limits_{W'\in[0,W]}\qquad& u(W-W')+\beta V(W')\qquad\forall W
\end{align}

$\textbf{My Question}$: Why is the unknown in the Bellman equation $V(W)$ itself? Isn't the choice variable tomorrow's state, $W'$?


texts: Rationality and Common Belief in Rationality in Brandenburger & Dekel (1987)

texts:
One of the fundamental results in epistemic game theory is that the solution concept of correlated rationalizability gives exactly those action profiles that are compatible with rationality and common belief in rationality. A precise statement and formulation of this result is given in

  Tan, Tommy Chin-Chiu, and Sérgio Ribeiro da Costa Werlang. "The
  Bayesian foundations of solution concepts of games." Journal of
  Economic Theory 45.2 (1988): 370-391.

as Theorem 5.2 and Theorem 5.3. An alternative reference often cited for this result (at least in the context of finite games, Tan & Werlang allow for compact metric action spaces) is

  Brandenburger, Adam, and Eddie Dekel. "Rationalizability and
  correlated equilibria." Econometrica: Journal of the Econometric
  Society (1987): 1391-1402.

For example, the survey on epitemic game theory in the fourth volume of the handbook of game theory credits Brandenburger & Dekel for this result (online version, see Theorem 1 there). I have actually seen many such references but was not able to locate the result in their paper. That paper contains 4 propositions and none of them corresponds to this result. The authors actually credit Tan & Werlang and write "Tan and Werlang (1984) and Bernheim (1985) provide formal proofs of the equivalence between rationalizability and common knowledge of rationality." (Tan & Werlang 1984 is the working paper version).

What am I missing that everyone else gets?


texts: Is there an argument from first principles for the form of the no-ponzi condition?

texts:
in the ramsey model, we use the no ponzi condition $$\lim_{t\to\infty}e^{-R_t}a_t\geq 0$$

for assets $a_t$ that a household holds at time $t$.

I understand intuitively what the reasoning behind this is: the present value of the level of assets one holds in the "final period" (which goes to infinity), cannot be negative, because if it was, lenders would not be willing to borrow.

However, I have ever only encountered this argument in vague terms like that. I have never seen a rigorous argument that the condition has exactly this form (rather than some other form such as $\lim_{t \to \infty}a_t\geq 0$, or $\lim_{t \to \infty}e^{-f(t)}a_t\geq 0$ for some other function $f$).

In the Ramsey model, we have of course the equation of motion for capital, and while we can integrate this, and find something that looks like the no ponzi condition, we cannot actually derive the condition from it. It also seems to me that the no-ponzi condition is a bit ad-hoc, since we don't explicitly model lending and borrowing at all in the ramsey model.

So is there a rigorous argument from first principles, based on the assumptions of the Ramsey model, that this is the condition we need, that doesn't rely on simply vaguely stating that "otherwise the household could borrow indefinitely"?


texts: Depreciation of currency shall incentivise or disincentivise the foreign portfolio investors?

texts:
I am confused -

if suppose currency depreciates then assets will become cheaper and foreign investors will find it enticing to buy these assets so in that case, foreign inflows shall increase
In economic survey (a government of India document) however, states that depreciation of currency disincentivize the FPI

So please explain what will be the outcome and why?
I will be grateful for your help.
Thank you so much.


texts: Why does an increase in money cause a proportionate increase in price level according to classical/neoclassical economists?

texts:
First I am not sure what classical economists say but doesn't increase in Money supply decreases interest rate and cause investment to expand and thus GDP rises.
Therefore the aggregate demand increase, causing price level to rise. But what does proportional mean in this case?


texts: Homogeneous of Degree Two Utility Functions and Homothetic Preferences.

texts:
The understanding that I am not clear is in when do homothetic preferences represent a utility function and vice-versa. My solution to the problem is posted below the problem:
A consumer’s preferences are described by a utility function that is homogeneous
of degree two: For all $\alpha > 0$ and $x \in R^{L}_{+} $ ,
$u(\alpha x) = \alpha^2 u(x)$
The problem that I am not getting clear is:
Q) "Are this consumer’s preferences homothetic? Show that they are or give a counterexample."
My solution:
According to Mas Colell et al. "Microeconomic Theory" (chapter 3, page 50)

Therefore, this given consumer's preferences are not homothetic as it doesn't generate a utility function that is homogeneous of degree 1 (HOD(1)). A counter example would be a utility function that is HOD(1) like the Cobb Douglas Utility Function
$ U(x_1, x_2) = x_{1}^{\alpha} x_{2}^{1-\alpha} $
To conclude, this consumer's preferences are not homothetic as it represents a utility function of HOD(2). While , according to Mas Colell et al. preference $\pmb{\succsim}$  is homothetic $\textbf{if and only if}$ it admits a utility function that is HOD(1).
Could you please help me in understanding where I am going wrong with what Mas-Colell mentioned above "necessary and sufficient condition" and how a utility function that is HOD(2) implies that $\pmb{\succsim}$ is homothetic.
Thanks.


texts: Is the opportunity cost under the supply curve?

texts:
Is it correct to say that the opportunity cost is a particular point on the supply curve? And if so, why?

I understand what is going on with the opportunity cost with the production possibilities curve (how you give up more of one good when producing another), but I'm just not sure how it relates to the supply and demand curve, and area underneath the supply curve.

On this video, (https://www.youtube.com/watch?v=zEE-qOuo_Cw), at 3:15, he says that there is an opportunity cost more than $9. Why is this referred to as opportunity cost?


texts: Has the natural rate of unemployment decreased with modern travel and the Internet?

texts:
The natural rate of unemployment is a combination of structural unemployment and frictional unemployment.
Structural unemployment is caused by a surplus of labor at a given wage in a given area.
Frictional unemployment is caused by workers searching for or transitioning between jobs.
However, modern travel (airplanes, automobiles, etc.) would reduce structural unemployment and frictional unemployment by allowing for faster movement of excess labor to transfer to areas with a shortage of labor; similarly, the Internet (specifically search engines, online jobs fairs, etc.) would reduce frictional unemployment by allowing for workers to search for and find jobs more easily.

Does this imply that the natural rate of employment decreased with modern travel and the Internet?


texts: What is the most accessible work of Herman Daly?

texts: I am an undergrad with limited experience in the fields of economics and ecology, and having recently discovered the work of the celebrated economist Herman Daly, who has been writing for decades about sustainable development and the steady-state economy. I'm wondering which of his books is the best introduction to his ideas; steady-state economics and others. Considering this may be the only book of  his that I read for a while, I would just like the best overview possible. Thank you.


texts: Why do national governments not rent money from central banks directly?

texts:
The central bank gives money to the business banks, who then give that money to people, companies and government agencies/units.

When a government controls the central bank, why doesn't the government lend money from it instead of business banks?

That way they would have:

a lower interest rate
control on their interest rate
theoritically no limit
etc.

EDIT:
My question is only about where the government gets the money. I'm not suggesting that the central bank should lend money directly to people or companies.


texts: Why did the pound sterling lose its reserve status to USD?

texts: Why did the pound sterling lose it reserve status to USD? Was this due to some agreement during the Bretton Woods negotiations?


texts: Why do many occupations show a gender bias?

texts:
Yesterday we had a question about the alleged underpayment of women in work, asking why employers would hire fewer cheaper female workers and would instead hire a larger number of expensive male workers. A large amount of discussion ensued.
I'd like to approach the same topic from a different angle.
Without doubt many occupations show a gender bias, and across the board it is apparent that women are more concentrated in occupations which attract lower hourly pay.
What are the economic reasons why, when encountering low pay (or anticipating it at the start of their careers), women should not simply respond to economic incentives, and choose to transfer to higher-paid occupations to increase their earnings?
I should say pre-emptively that I'm not satisfied with ideas that merely may explain the effect, as yesterday's question produced a proliferation of rationalisations and claims that lacked rigour.
I'd prefer to see an explanation that attempts to be comprehensive, or supports contentious claims (such as those about women's productivity) with research.


texts: Are there really only two main macroeconomic models?

texts:
I was told that there are really two broad categories of economic models in macroeconomics. These Being:
1)Neoclassical Growth Models
2)Overlapping Generations Models

All other models that exist are variants of these two. By explanation:

Neoclassical Growth Models include:
1)The Solow Model
2)The Ramsey Cass Koopmans Model
3)The AK/"Learning By Doing" Model
4)The RD Model (endogenous growth)
ect.

Overlapping Generations Models Include:
1)Diamond Overlapping Generations Model
2)The Samuelson Overlapping Generations Model
3)The Overlapping Generations Model with Money.
Ect.

Is this really the case?


texts: Is this a joke by Galbraith or did he have something more serious on mimd?

texts:
In the Sydney Morning Herald, May 1982 Galbraith is on record for saying:

  Wealth, in even the most improbable of cases, manages to convey an aspect of intelligence.

As an economist Galbraith would have had a chance to have to observe men with great wealth at close quarters, so one supposes that this acerbic little comment is drawn from life. But did he mean something more important by it, or was it simply a joke on his part at the expense of the wealthy?

note: I’ve tagged it as macroeconomics as I couldn’t hink of the right tag this should be filed under. Any sensible suggestions will be appreciated.


texts: Are there strains of economics that are "no (political) economics"?

texts:
To support my belief in the arbitrariness of economic theory and thought, since different economic systems have their own rules, theories etc., which contradict the rules of other systems and which most of I think are authoritarian (because they're enforced over groups using politics),

does there exist school(s) of economic thought that is about "no economics" or "no economic theory"? Or perhaps no economics in the sense that "all economic theories (e.g. capitalist, communist ...) at the same time".

Or in other words, is there economic theory that's non-political, i.e. does not require politics for functioning?


texts: Historical sovereign bond yield and CDS rate data download

texts:
Does anyone know where I can download from:

1) historical data for sovereign bond yields (or prices) and
2) historical data for soveregin CDS (credit default swaps) rates?

preferebly free?


texts: Solving rational expectations model - Sims form

texts:
I am trying to solve my first ratex model and make some impulse response functions using Dynare. I am following Leeper (1991). This is what I have done so far:

The utility function is $\log(c_{t})+\log(m_{t})$.

I obtain two first order conditions:

(1) $\frac{1}{R_{t}} = \beta E_{t}\frac{1}{\pi_{t+1}}$  and

(2) $m_{t} = c[\frac{R_{t}}{R_{t}-1}]$

Where $R_{t}$ is the gross nominal interest rate, $\pi_{t}$ is the gross inflation rate and $c$ the deterministic steady state value of consumption.

Suppose the monetary authority follows the following rule:

$R_{t} = \alpha_{0} + \alpha \pi_{t} + \theta_{t}$ where $\theta_{t} = \rho_{1} \theta_{t-1} + \epsilon_{1t}$,   $|\rho_{1}|<1$

The fiscal authority follows:

$\tau_{t} = \gamma_{0} + \gamma b_{t-1} + \psi_{t}$
where $\psi_{t} = \rho_{2} \psi_{t-1} + \epsilon_{2t}$

I then substitute the monetary policy rule in to (1) and both policy rules in to the government's flow budget constraint and linearize around the steady state. I end up with the same results as Leeper:

(3) $E_{t}\widetilde{\pi_{t+1}} = \alpha \beta \widetilde{\pi_{t}} + \beta \theta_{t}$

(4) $\varphi_{1} \widetilde{\pi_{t}} + \widetilde{b_{t}} + \varphi_{2}\widetilde{\pi_{t-1}}  - (\beta^{-1}- \gamma)\widetilde{b_{t-1}} + \varphi_{3} \theta_{t} \ +\psi_{t} + \varphi_{4} \theta_{t-1} = 0$

where the varphi's are steady state constants. So far I have just replicated what Leeper has done. Since I would like to make IRF's I believe I have to 'solve' the model. I haven't been taught this at university yet so all I know if from reading online lecture notes. I want to use Sims form, i.e

[![enter image description here][1]][1]

And this is the system I ended up with:

[![enter image description here][2]][2]

I forwarded (4) one period in order to obtain $b_{t+1}$ and just put everything in matrix form.
$\eta$ is the forecasting error from (3).

I apologise for the matrix, I am not sure how to write matrices in TeX but hopefully you get the idea.

Now I want to stack the matrices as the following:

The capital gamma's and phi's are the coefficient matrices from above.

There should be a matrix for the forecasting errors but I am not completely sure how to obtain it. But that is a minor issue at this point. If I have understood correctly, I can solve this by inverting the block matrix and since it is diagonal, the inverse is simply the inverse of gamma and phi. However, since phi_0 is singular I cannot invert it. So I have two questions:

(1) How do I deal with singular matrices in this context? I have seen some papers by Chris Sims where he shows to how to deal with singular matrices but my knowledge of linear algebra is too basic to understand it.

(2) Once I manage to solve the model, can I use Dynare to make IRF's?


texts:
Is my understanding correct:

In history (ancient, medieval) money was directly created by governments, therefore any monetary expansion meant 100% net profit for government, which could be used to finance whatever governemnt needs. The problem was that government (King) had strong incentive to create too much money, which caused serious inflation.
In modern states money is created by central bank, which lends them to private banks, which lend them further. Profit is generated by interest from this lending. The beneficiary of this profit is whoever owns shares in the involved banks. Those are typically wealthy people who have more savings. The government is typically rather borrowing (and paying interests) due deficit spending.
Monetary expansion and resulting inflation goes at the expense of everybody else in the economy (those who owns money, but does not own money-issuing authorities). While in the old system government benefited at the expense of everybody else, in the new system bankers and share-holders benefit at the expense of everybody else. In the old system monetary expansion was like property-tax (i.e. decreasing inequality). In the new system it increase inequality as mostly rich people own shares of money-issuing authorities.


texts: The General Rules To Solve BGP in Growth Model

texts: For the textbook neoclassical model with only one dynamic choice and one state variable and with the coincidence of optimal growth paths and competitive equilibrium paths, it is usually not difficult to solve the BGP. However when it goes to various endogenous growth models (e.g. the models in Acemoglu's textbook chapter 13-15 or simply the classical paper like Romer 1986 Lucas 1988), I often have no clue about the procedures of deriving the BGP. Yes I can follow each steps in the textbook and the papers, but I have no idea why they do this and then this (sometimes just like some magics to me). I understand that with different models one might need to deal with very different FOCs and differential equations, and thus the details will be very different. But I still wonder if there is some general rules to this type of derivation rather than doing random differentiation to the conditions of current Hamilton and replacing variables and seeing if some beautiful results popping up?


texts:
Suppose that $f(x,a)=\max[g(x,a),h(x,a)]$ and $x^{∗}=\arg\max_{x}f(x,a)$.
Also, let $x_1(a)=\arg\max_{x}g(x,a)$ and $x_2(a)=\arg\max_{x}h(x,a)$.
If both $x'_1(a)$ and $x'_2(a)$ are nonnegative, under what conditions is $\frac{dx^∗}{da}\ge 0$?