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I am trying to understand the causes and macroeconomic implications of running a trade deficit in the United States, and I came across a few different views on this topic.  I'd like to know if there are studies that try to understand the root-cause of this trade deficit.

First, I understand that trade deficits aren't necessarily a bad thing, and it all depends on the context.  Since the trade deficit reflects the difference between savings and investment, whether it's good/bad depends on what the excess investment is being used for, and whether the investments will reap benefits in the future.

That said, my focus is on trying to understand what is causing the current trade deficit to increase; I see there are different views:

US is consumption driven, and our consumers/government are spending beyond their means.  That is, there is a huge demand from the US economy, which is causing us to import more than we export, which is causing the deficit.  If we cut that spending, it will reduce the trade deficit [1].
East Asian countries (especially China) are experiencing a "saving glut" and instead of investing in their own country, they are exporting their capital to the US and parking it in safe US-Treasury investments.  It is this capital inflow to the US that is widening the trade deficit [2,3].

[1] https://www.washingtonpost.com/opinions/everything-you-need-to-know-about-trade-economics-in-70-words/2017/05/05/a2b76a02-2f80-11e7-9dec-764dc781686f_story.html?noredirect=on

[2] https://carnegieendowment.org/chinafinancialmarkets/77009

[3] https://www.federalreserve.gov/boarddocs/speeches/2005/200503102/default.htm

Qualitative evidence for (1):

Our savings rate, measured as fraction of saving to GDP is lower than what it was in 1950s--1970s: https://fred.stlouisfed.org/series/W207RC1Q156SBEA
Our federal deficit is widening, and taxes aren't enough to cover the government expenditure.

Qualitative evidence for (2):

China is a net exporter, and continues to be competitive by taking steps to prevent RMB from strengthening against the dollar.
Savings rate in China is a high fraction of their GDP, relative to the US: https://tradingeconomics.com/china/personal-savings.
The interest rates in the US are historically low, which is because there is a lot of demand for US treasury from abroad. Quoting from [2]:

  Interest rates suggest very strongly that capital isn’t sucked into the United States from abroad, but rather is pushed into the United States from abroad.

I see a bit of truth in both sides of the story.  US is consumption driven (not necessarily a bad thing), and China has high savings, probably because of a host of factors such as culture (savings minded), more income inequality (rich save more of their income than the poor), etc.

I have two main questions:

What is the direction of causality?  Is US consumption driving the trade deficit, or is foreign capital inflow driving US consumption?  I'd appreciate any academic citations that argues one way or another quantitatively.
If it's capital inflow driving US consumption, then why doesn't US just use the cheap loans to repay its current debt?  Isn't it in US's control to decide what to do with the capital we get -- why spend it?


texts: Indifferent choice assumption in economics

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Take, for instance, that you have a game similar to the one proposed by Levitt and Duggan (2000) in sumo wrestling (link: http://www.nber.org/papers/w7798.pdf, section II (pages 9-10) in which the paper describes the model).

Summarizing, a fighter maximizes a expected return in a non-rigged match. For a given fighter consider taking the bribe, the other minimizes a side payment (bribe) to the point of indifference between taking and not taking the bribe -- so, why would the fighter setting the side payment would not set the bribe so it would be marginally better to accept the bribe than not taking it? Why do the authors include the point of indifference among the possible solutions?


texts: Why would non-investment grade debt be issued at the investment-grade debt market?

texts:
Newsweek quoted Bentley University Prof. David Gulley

Ph.D., Univ of Kentucky-Lexington, 1990
M.A., University of Kentucky, 1989
B.A., Alma College, 1986

A \$10 Trillion Corporate Debt Bomb Is Waiting to Explode the U.S. Economy

The Fed's move to buy \$750 billion in corporate debt, and the Main Street lending program making \$600 billion in loans to small and mid-sized companies, helped indebted firms avoid bankruptcy. But it also added to the debt pile.
Aimed mostly at the investment-grade debt market, the issuance of non-investment grade debt "has skyrocketed" in the last few months, said David Gulley, professor of economics at Bentley University, Massachusetts.
"Long term, however, it's not clear whether the now highly indebted companies will be able to survive, especially in industries like travel and leisure," he told Newsweek.

The emboldening feels contradiction to me. Why would investors who care only for investment-grade debt suddenly want non-investment grade now? Especially now in COVID19, when non-tech large cap share prices are much lower?


texts: How does foreign exchange settlement work?

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How does the settlement of trades in foreign exchange work?

For example, if I am a large company with money in dollars and I buy another currency like Deutschmarks with my dollars, how does the money flow? Where do my Deutschmarks end up? Do US banks have accounts with foreign currency in them for this purpose?


texts: Why are mortgage rates in USA so high compared to Europe?

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What are the main reasons of high mortgage rates in USA compared to central Europe? In central Europe mortgage rates are about 75%-100% lower than in USA.

For data on mortgage rates see:
https://www.numbeo.com/cost-of-living/country_price_rankings?itemId=106


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In EU, Banks have changed their behaviour lately, e.g. as acting liquidity providers to certain markets like notes etc.

Introduction of Basel III is probably one reason (tighter capital and liquidity requirements). Due to new stress tests, some of European banks are seen to be in bad shape.

Anyhow, Basel III is not yet finished. How banks are expected to change their lending or market making behaviour during the end of this decade? Is it possible to estimate, what sectors are going to get hurt?


texts: Finding Optimal Bundle and Change in Satisfaction after Changes in Budget Constraint

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I am looking at the following exercise and struggling with the solution proposed by my microeconomics book.

  A consumer spends all his income on two goods, X and Y. The prices he paid and the quantities he consumed last year are as follows: PX = 15, X = 20, PY = 25, and Y = 30.
  We assume the consumer's preferences follow the 5 properties for preference ordering (complete, transitive, more-is-better, convex, continuous).

  If the prices next year are PX = 6 and PY = 30, and the consumer's income is 1,020, will he be better or worse off than he was in the previous year? (Assume that his tastes do not change.)

For the Solution we first find the consumer's budget constraint of last year:

M = PX * X + PY * Y = 15 * 20 + 25 * 30 = 1050

We need to ask can he buy last year’s bundle given the new prices?

PXnew * X + PYnew * Y = 6 * 20 + 30 * 30 = 1020

Given that the consumer can still afford last year's bundle, he must be (in my opinion) at least as well off. I am working with a economics book and the solution proposed in the book claims, that the consumer must be better off using the following figure as explanation:

I am wondering, couldn't the indifference curve that is tangent to the bundle at X = 20, Y = 30 for the last year, also be tangent to a point on the new budget constraint and equal the highest indifference curve that can be reached?

Is there an explanation, given the 5 properties of preference ordering that the consumer MUST be better off.

EDIT:

I have added the image below to clarify my question.

I am wondering whether the indifference curve in red in the image could look like this and imply that the satisfaction level is not increasing as the consumer will stay on the same indifference curve but consume a different combination of X and Y.


texts: Nash Equilibrium for n-shops Location Game

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So if two ice cream shops were to be placed in the location $[0,1]$, inorder to maximize their own pay offs, they both would finally come to the location $[\frac{1}{2}, \frac{1}{2}]$. This is also the Nash Equilibrium of the problem and does not require a lot of mathematics to understand.
Now my problem was when we are playing this game for 3 different shops, like there is no intuitive answer for the problem. Every possible answer I thought of ($[\frac{1}{2}, \frac{1}{2}, \frac{1}{2}]$, $[\frac{1}{4}, \frac{1}{2}, \frac{3}{4}]$ etc.) is not a Nash Equilibrium.
So like is there a mathematical way that I can use to find the Nash equilibrium location for this game, or prove that it doesn't exist.
Also can this be generalized to $4,5 ...n$ games?


texts: Are academics and policy makers confident that the benefits of free trade outweigh the downsides?

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My (admittedly very limited) understanding is that free trade is seen by most academics and legislatures in the West as an ideal to strive for.

The theory is that if a man in China can manufacture a ceramic cup cheaper than a man in Stoke-on-Trent then the UK government should not protect the Stoke man from the competition. In any way (AFAICT).

The reasoning being that the UK buyers of ceramic cups will benefit from the lower cost of the good from China and presumably that the market remains more efficient.

The societal costs of this approach can be huge. For example, unemployment, lower wages and all the pathologies that are concomitant.

So UK citizens get cheaper ceramic goods on the one hand, but in a socialist system they have to pay for this privilege with the other via taxation to support entitlements and governmental support to mitigate the aforementioned societal effects.

Furthermore the cost of production is often only loosely related to the selling price. So for example hypothetically it is possible that, say, a large UK company, say Debenhams will source ceramic cups from China, but retain the price differential as profit for distribution amongst board members. Thereby making this a redistributively regressive policy.

Why have Western governments pursued so aggressively this free market model between countries with wildly different economies and laws (cf environmental) without appearing to take into account the "price" that has to be paid for this "market efficiency"?


texts: Logit model and logistics regress, what the diffrence?

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In economics and business school, we talks about logit models a lot. In general, we mean the conditional logit model (McFadden (1973). But in statistics, they use logistics regression. I have been puzzling for years and could not find the answers.
For logistics regression, you model log(odds) as dependent variable and logit models, you model "utility function". Both models are about binary variable, at least for their simplest forms.
Except that the name and operation a bit different. What is the difference between them?
When you interpret the results, for logistic regression, the interpretation varies with "prob., odds, and log odds" and I guess, logit model, results mainly deals with the utility function. I am just very confused with the terminology. In some papers, I suspect they just run logistic regression but refer them as logit model, which makes me even more confusing.


texts: How is the cost of equity for a specific stock calculated using the Fama-French 5 factor model?

texts:
The Fama-French 5 factor model is as follows:
$$R_a = R_f + \beta_m \left( R_m - R_f\right) + \beta_s\text{SMB} + \beta_v\text{HML} + \beta_p\text{RMW} + + \beta_i\text{CMA}$$
It is quite easy to find $\beta_m$ for a specific stock (most stock websites have it listed), and the market premium is also quite easy to determine since $R_f$ the US Treasury 1-month bond and the annual return of the market in the long term (at least in the U.S.) hovers around 8-10%.
However, I am not able to find a resource to find out the size, value, profitability, and investing premiums nor can I find the specific betas for each risk factor for a specific stock.
My question is if I want to calculate the cost of equity for a specific stock, using the CAPM model is quite easy as most of the numbers are readily available, but how could I go about finding the relevant figures for the rest of the risk factors?


texts: Estimate unobservable $X_t$ with observable estimation {$Y_t$}, where $Y_t= X_t+\delta e_t$

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Suppose there are measurement values {$Y_t, Y_{t-1},..., Y_0$} which come from the relationship $Y_t= X_t+\delta e_t$, where $\delta$ is a known constant, $e_t\sim N(0,\sigma^2_e)$ is a Gaussian distribution with known moments while $X_t\sim N(\mu_X, \sigma^2_x)$ is unobservable whose mean needs to be estimated ($\sigma^2_X$ is known).
Empirically, how does one estimate $\mu_X$ with the measurement value {$Y_t,...$}? Can the estimation be performed if both $\mu_X$ and $\sigma_X^2$ are unknown?
Btw please also tell me if there's any literature I can refer to (or start with). I've come across bunches of papers about Bayesian estimation in macro but can't figure out where to start.
Thanks a lot in advance!


texts: Bond market vs stock market during crisis

texts: Why does bond market not change as much as the stock market during financial crisis? On the picture we see the development of the two markets


texts: Why does the price for a prescription drug fluctuate?

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"In drug price hearing, Congress tries to answer some basic questions" - dateline June 2017 CNBC.

I order a brand name prescription that has no generic, that is still under patent protection, that is not an orphan drug from a large mail order pharmacy. I have been getting this same prescription for six years. The mail order firm buys direct from the manufaturer, adding their overhead and profit to the price and then is paid by (1) my direct payment and (2) payment from my drug prescription insurer.

Over the past two years (in particular) the sum of payments (from 1 and 2 above) to the mail order pharmacy has varied substantially, and inconsistently (eg. increases and decreases) from a low of \$1400 to a high of \$2600 for the same 90 day order.

To be more specific in my question, why would a manufacturer price for a drug fluctuate as I describe.

One area That I've not been able to research is if Insurances companies negotiate pricing with the manufacturer -- but if that is the significant factor -- it suggests that the negotiated pricing only holds for 90 days or so.

Any insight would be helpful.

If their is a better place to ask this question, please suggest.


texts: If two variables are not cointegrated, can one still cause the other?

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For part of a project, I wanted to see if electricity consumption causes GDP in Colorado. I initially intended to follow the approach of Mozumder and Marathe (2007), who use a VECM approach, but that requires cointegration.

I'm not sure what to do now. I tried the Toda-Yamamoto method but my errors seem to be serially correlated...


texts: Are slacks the same as mix-inefficiency?

texts: On the diagram below it is stated that A' has input slacks as it could reduce the amount of $x_2$ and still be on the frontier (by moving to C). However I recall mix-inefficiency having a similar definition. Is there any difference between slacks and mix-inefficiency?


texts:
Does anyone know of any open-source U.S. data sets in a format appropriate to whole-economy CGE econometric modeling, i.e. data sets covering the entire economy, divided into at least 20 sectors, with annual price and quantity indexes for each sector? And I think I'd need 20 years or so of reasonably self-consistent data to have any hope of estimating flexible functional forms for production functions, etc.

I know that to really do this right you probably need to  combine data from multiple sources and become familiar with their idiosyncrecies. I've done that for certain sectors. But I'd like to see if I can embed my sectors in a whole-economy CGE, and I've also been thinking that I  could explore a richer system of own and cross-price elasticities than I have believed in the past to be feasible by using LASSO or some other form of penalized model to prevent excessive dimensionality.

Would BEA IO account data work for this? I think last time I checked the price part of the IO model was only updated every five years. But that was some years ago.


texts: Which of the following explains that the price increase of oil cause the price of natural gas to increase?

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A) Oil is inferior good while natural gas is normal good.

B) Both of them are normal good.

C)They are substitute goods and the higher price for oil increased the demand for natural gas.

D)They are substitute goods and the higher price for oil decreased the supply for natural gas.

In my personal opinion, the answer should be C. We can eliminate A and B first as there's no indication of income change. For D think since substitute good refers to the customer side so I think we should also remove D. Is there a better explanation ?


texts:
The reserve bank recently announced it would print $100B over 6 months, and spend this buying back gov bonds.

Will this policy advantage the financial sector over other parts of the economy?
Why doesn't the reserve bank give this \$100B to treasury directly, so that fewer bonds need be issued to support gov spending?
Alternatively, why doesn't the reserve bank distribute this \$100B directly to ordinary households (e.g. \$4k per resident)?


texts:
The basic idea of Schumpeterian Business Cycles is that new technologies require creative destruction but will yield positive growth. These two opposing forces have impacts onto the real economy at different times, which will create fluctuations around the trend.

Romer (1986) has these effects in an explicit growth model, but he neglects the business cycle fluctuations.

Has there been any literature of business cycles based on the idea of Schumpeterian Growth?


texts: Proving ranking using completness and transivity

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The book by Jehle and Reny says that one can proof the ranking of consumption bundles using the axiom of completness and transivity.
But the have not proved this in the book and I also have a hard time finding it on the internet.

Could someone be kind enough to at least give me at sketch of the proof?

Kind regards,


texts: What is the opportunity cost if I choose the option of highest value

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I had a confusion about opportunity cost.

Suppose I have three alternatives which can be completed in same time, and can provide me the value of \$30, \$10 or \$40. If I choose the one with \$10 then, the opportunity cost will be \$40 as it is the best alternative that could have been done in the same time.

What if I choose the work with \$40. What will be its opportunity cost in this case as there is no better alternative here.


texts:
I was reading this neat piece by Fudenberg http://fudenberg.fas.harvard.edu/predictive%20game%20theory.pdf on Predictive Game Theory. He argues correctly that most traditional work in Game Theory is not suited for prediction in real world set-ups.

Do you know any work that has advanced the theory or empirics of  predictive game theory?

I am aware of some recent work of partial identification for games but I am more interested in learning in games and off-equilibrium dynamics.


texts: Using metrics provided by FRED to identify the business cycle

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I am interested to see how the "business cycle" is associated with our firms sales. The hope is that if we can show that our sales line up with the business cycle then we can make decisions accordingly.
If, for example, our sales have historically been hurt when in a recession, then it would be good to keep a pulse on this macroeconomic factor to know when we should increase or decrease spend.
The problem is that I am not sure how to identify the business cycle. I am not an economist by trade. I have been pulling some data from FRED, but I am not sure which indicators to look at for identifying the business cycle. I have two hypothesis:

Unemployment. Record low unemployment may be an indicator for a recession. I think that this is getting slightly more convoluted these days as I think that employment takes into account people with either W-2s or 1099s, but as the people who rely solely on 1099s increase I think that the meaning of unemployment changes. Something like a gig economy effect. This makes this metric maybe less reliable than it used to be as the gig economy becomes a reality.

% difference in real vs potential gdp This metric seems to ask, 'Is real gdp exceeding potential gdp'. I don't understand how it is possible to have gdp exceed potential gdp, but I am not an economist so I don't need to worry about that ;). This does seem like an okay metric to represent the business cycle since it seems to quantify if real gdp is too high.

Edit
My above thoughts simplify to the following question:
If someone asked you to show him/her the the business cycle, what graph --- on FRED --- would you show that person?


texts:
Adam's consumption period 1 and 2 are denoted by $c_1$ and $c_2$ respectively. His utility function is $U(c_1,c_2)=4c_1^{0.5} + c_2$
Ben earns an income of \$3 in period 1 and \$3 in period 2, regardless of the level of inflation.
a.  Suppose there is no inflation and the interest rate is 5%. How much will Ben consume in each period?
b.  Now suppose that inflation rate rise to 100%. How much will Adam consume in each period now?

For part a, I took $c_2= -1.05c_1 + 6.15$ as the budget line and equated it to
MRS of his utility function. I managed to obtain $c_1 = 3.63$ and $c_2= 2.341$.

However, I am unsure of how to do part b as I obtain a negative answer for $c_2$ after doing the same steps as part a. The only differenece was that I took into account inflation for part b.


texts: Are there more historical examples of big change in prices thanks to demand/supply changes like the tulip mania?

texts: I'm currently searching for historical changes in prices as a result of a big/sudden change in demand/supply, like the tulip mania in Holland. Are there any notable examples?


texts: is "output" another way of saying "real gdp"?

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I keep hearing "output" alot and even "real output" sometimes, do these terms has to do with Nominal or Real GDP" ? because i a confused and could not really find anything useful on the internet
Thanks in advance


texts: What are the best books for developing a solid understanding of fundamentals of Economics?

texts:
Recently, Raghuram Rajan, a former chief economist at the International Monetary Fund and current Governor of central bank of India, while addressing undergraduate students of Economics, said:

  ... In this country there is a tremendous need for capable economists. I see that every day in my work. There is a need in Delhi, in Mumbai and all over the country. We have lost a generation of economists...The kind of economics we need is based on a good understanding of the fundamentals of economics, such as price theory and general equilibrium, which is the hardest concept to understand. A lot of policy-making is done without an understanding of general equilibrium which is often the key contribution that an economist can make to the dialog. The kind of economics we need is based on rigorous fundamentals – blood, sweat, tears, and toil. ...

I am a student of public policy in India, aiming to achieve a key position in public policy making. As much as his above statements make me worry at many levels, they also set a a goal for me to achieve.

In this context, given my background, what do I read to gain "that expected level" of understanding? How should my learning path look like?

EDIT: I'm asked to provide my mathematical background. I have done following undergrad math courses:

Algebra
Linear Algebra
Real Analysis
Complex Analysis
Calculus
Analytic Geometry
Ordinary Differential Equations
Partial Differential Equations
Linear Algebra
Vector Analysis
Linear Programming
Numerical Analysis and Computer programming
Dynamics & Statics
Mechanics and Fluid Dynamics

You can say, I can solve most of the problems from undergrad textbooks on above subjects. I dealt with statistics only at my Senior High School level.


texts:
I need a bit of help interpreting this version of the Taylor rule I stumbled across recently:

$$\ln\frac{1+i_t}{1+i} = X_i \ln\frac{1+i_{t-1}}{1+i}+X_{\pi}\ln\frac{\pi_t}{\pi}+X_y \ln\frac{Y_t}{Y}+X_s \ln\frac{S_t}{S}+X_{\theta}\ln\frac{{\theta_t}}{\theta}$$

I think that S is the exchange rate and theta is a money growth factor. Other than that, I am not very sure. I am hoping this uses some standard notation so that anyone here more familiar with economics research might be able to give me more thorough understanding of what is happening here.


texts: As a (micro) behavioral economist looking for a faculty job, how should I present my research approach/skill set?

texts:
I am asking as someone who has applied behavioral econ theory to design lab experiments and a couple field experiments. I notice that there is a bias against experiment-based research on the market.
... What can I write to demonstrate the value addition of my skills, besides my knowledge of behavioral econ theory. Or what are some impactful ways you have seen others present their skills as behavioral economists? Or how do you value the skills a behavioral economist brings to your research team?
I am applying for positions that get applications from people with labor, environment, and development econ backgrounds,  and I'd like some advice on how best to market a behavioral econ background.
I realize it's hard to give advice without knowing the kind of research projects I've worked on, but I'll appreciate even general, high-level advice.


texts:
Assume that there are two parents A and B who are tempted to pick up their children late. We denote the set of parents $N = {A, B}$. Each parent $i \in N$ chooses from the action set $A^i = {E, L}$ between being early or being late. The game is perfect information. If we denote the opportunity cost of being early $c_e^i$, we have $c_e^A=31$ and $c_e^B=33$. Suppose that for each child that is recollected late there is an implicit cost of $c_{L,e}^B=20$ on each parent. We can denote the total externality that each parent faces as $C_{L,e}(n) = nc_{L,e}$
Would the payoff matrix be something like this:
$$\left[\begin{matrix}(-11,-13)&(11,-13)\\(13,-11)&(13,11)\end{matrix} \right]$$
B in row and A in column.


texts: Why is the money supply perfectly inelastic?

texts:
From my notes:

We analyze the determination of the interest rate using a supply/demand model relating the interest rate (price of money) to the quantity of money. Since we assume:

1) no excess reserve

2) no excess currency in circulation

Real money supply (Ms/P) does not change with with a change in the interest rate, thus perfectly inelastic Ms

This is the part I don't really get. If money supply is determined by the central bank/government, does my notes have any connection to understanding why money supply is inelastic?


texts:
It seems one factor ignored (or is it?) in economic theory is saturation of durable goods. By this I mean the fulfillment of fixed need for durable goods.

We can imagine income to be divided between consumables, durable goods, capital investments (like real property) and savings. Spending on durable goods is often equated to that on consumables, but this does not seem right to me.

For me personally, for example, I notice that I am spending less money overall and saving more money, not because I want to save more, but because I have simply bought all the stuff I need. After 30 years of buying tools, appliances, books, furniture I literally have every single tool and appliance I need. Ten years ago I was still buying all kinds of stuff, drill presses, rotary saws, juicers, you name it. But now that I have all that stuff I don't need to buy anymore. I mean I don't need two lathes, I just need one lathe.

So, especially if we consider a static or aging population there would seem to be an effect whereby the population is "all tooled up" and no longer needs to spend on durable goods (except for maintenance purposes). Is this phenomenon recognized by any economic theory?


texts:
When discussing the standard neoclassical model of labor supply, I have seen it is assumed that the sign of the income effect is ambiguous. Could anyone please explain this assumption, and more generally, how to think about the substitution effect and the income effect in this model?

Kind regards.


texts: Corner solution of the maximization problem

texts:
Answer

Hello, I upload the actual question with my 8-pages answer. Please can you check it. Is there a corner dissolution for $c=\gamma$. Please share your ideas. Thanks.


texts: What does irrationality mean under the notion of revealed preferences? An example with terrorism.

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I am currently studying for an economics of conflict exam and one of the potential questions is likely to be in the vein of "Are Terrorists Rational - Discuss".

However how would rationality be defined in this context?

A canonical example is often metal detectors, whereby it is has been shown that when metal detectors were introduced in airports, terrorists substituted skyjackings for other means hostage taking. This would imply some rational framework where terrorists have some sort of budget constraint and indifference curve.

However, under the assumption that they didn't substitute for another form of terrorist action, would this imply irrationality? On a superficial level it may, but what if they just valued skyjackings really highly? Under the notion of revealed preferences, surely by just attempting to skyjack you are showing that skyjacking is valued to you and you are therefor doing a "rational" action?

So can something ever be irrational?


texts: There has been a lot of evidence about the firm size distribution (as measured in employment) being Pareto (see for example Luttmer 2007), but what are the properties of this distribution over the business cycle?


texts: Profit Maximisation if MC is still falling after intersecting MR

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really basic one here, I am just in the process of re-covering old ground.

I understand that for any profit maximising firm
FOC: MC=MR
SOC: MR'< MC'

But suppose MC has a minimum beyond the point at which MR=0. So MR still intersects MC from above but MC is still falling (does this still satisfy SOC?).  In that case would the max difference between TR and TC be greatest at some Q higher than where MC=MR?

Also I am looking for sources/examples of where economic assumptions are really taken apart in an applied setting.  A lot of the Industrial Organisation I am looking at sticks to the same neat assumptions.

Thanks in advance.


texts: Creative destruction and quality-adjusted inflation rate.

texts:
I'm reading this article in VoxEU.org, and there's the following paragraph:

  If the statistical office is correct to assume that the
  quality-adjusted inflation rate is the same for creatively destroyed
  products as for surviving incumbent products, then the market share of
  surviving incumbent products should stay constant over time. If
  instead the market share of these incumbent products shrinks
  systematically over time, then the surviving subset of products must
  have higher average inflation than creatively destroyed products. For
  a given elasticity of substitution between products, the more the
  market share shrinks for surviving products, the more the missing
  growth.

From what I understood, since the entering products have a lower quality-adjusted price, and that's why they enter the market. I don't understand several things:

1) Why the «surviving subset of products must have higher average inflation than creatively destroyed products»? Do they mean by this sentence, that the the surviving products have higher quality-adjusted inflation than those which just entered? If so, I understand that this would be a sufficient condition for the creative destruction, however, I don't see how it's a necessary conditions, as it seems to be implied by the text.

2)Why «For a given elasticity of substitution between products, the more the market share shrinks for surviving products, the more the missing growth.»?

Any help would be appreciated.


texts: Is there a reliable estimate of what proportion of adults in a country are in debt at a given time?

texts: Is there a reliable estimate of what proportion of adults in a given country are in debt at a given time? With "debt" covering student debt, debt secured by mortgages on property, credit card debt, etc.?


texts: Equivalence of definitions of continuity

texts:
One of the definitions of continuity is that the Upper Contour Set and the Lower Contour Set are closed.

I am trying to show that if preference is continuous and $x>y>z$, then there is some $\alpha \in [0,1]$ such that $\alpha x+(1-\alpha)z>y$

Can you help me to prove second one by using closeness?


texts:
I would argue that the marketing (or de-marketing as in the example of a recall) of goods and services is an implementation of knowledge and experience in microeconomics as it deals with the practical economic activity of single persons and/or entities.
Is marketing a field of economics?


texts: What is the average percent of value an employee makes which he gets on salary (called)?

texts: I'm looking for any statistics showing the average percent of money employees get from the monetary value they create, primarily from the US or EU. Is there a term for this ratio?


texts: Slutsky Decomposition from Indirect Utility Function

texts:
Given the indirect utility function:
V={M^2}/{4P1P2},
how do we establish the Slutsky Decomposition?
I used Roy's Identity to get the Demand, but I'm stuck with the other components of the Slutsky Equation.


texts: Cannot reproduce paper result on Boston Housing

texts:
I have been trying to reproduce the results for "Hedonic Housing Prices and the Demand for Clean Air" but to no avail thus far. In table 7 there are three regressions mentioned using the Boston data set, this is found here and in the MASS R package.

I have tested the means and stand deviations reported against those in the data, and have had accurate results (although some variables such as lstat, nox and medv needed some mapping). I could not accurately show that the mean and standard deviation of black, given his mapping of the variable as (x - 0.63)^2, in the data set this is multiplied by 1000.

What is more, I could not reproduce the results of the regression. Using both rlm and lm in R, the coefficients were consistently off.

This is a pretty major paper, and a data set which has been used pretty widely, so would be surprised if the error wasn't my own. But would be nice to see if anyone else has managed to reproduce this in R or elsewhere.

Please find my R code below:

# Load MASS for rlm and Boston
library(MASS)

# Sort into the correct order
data <- Boston[,c("medv","rm","age","black","lstat","crim","zn","indus","tax", "ptratio", "dis","rad","nox")]

# Creating a copy of table 5
rbind(sapply(data, mean),sapply(data, sd))

# Creating a copy of table 6
cov(data)

# Attempt to reverse engineer black variable
mean(-sqrt(Boston$black/1000)+0.63)

# Setting out the structural form
form <- formula(I(log(medv*1000)) ~ I(rm^2) + age + log(dis) + log(rad) + tax + ptratio + I(black/1000) + I((lstat/100)) + crim + zn + indus + chas + I((nox*10)^2))

# Regressing using rlm
rlm(form, data = Boston)

# Regressing using lm
lm(form, data = Boston)

# Comparing to referenced data set to check that
alternate <- read.table("https://archive.ics.uci.edu/ml/machine-learning-databases/housing/housing.data")
as.matrix(Boston) - as.matrix(alternate)


texts: UK Government Coronavirus Job Retention Scheme Funding

texts:
During the Covid-19 outbreak the UK government is offering to pay upto 80% or a max of £2500 per month to prevent employers laying off workers;

  Furloughed workers
  If you and your employer both agree, your employer might be able to keep you on the payroll if they’re unable to operate or have no work for you to do because of coronavirus (COVID-19). This is known as being ‘on furlough’.

  Your employer could pay 80% of your regular wages through the Coronavirus Job Retention Scheme, up to a monthly cap of £2,500.

In some instances wealthy individuals and companies are using this government fund to pay employees instead of taking the burden on personally/commercially which would be entirely feasible for them. This has created anger towards these people/companies.

However, as I understand it, the money that the government pays out will no doubt be recouped by the government at some point through an increase in personal income tax/VAT(Sales Tax)/Corporation Tax or a combination of all three. In which case the government is essentially providing a loan with repayment an expectation. Is this correct? in which case it would be perfectly reasonable for employers to use the Coronavirus Job Retention Scheme even if they could afford to make the payments themselves rather than laying off the workers.


texts: Why would the rich care about the poor's overinvestment in riskier investments?

texts:
Glasbeek, Harry. BA, LLB (Melbourne), JD (Chicago).
 Class Privilege: How Law Shelters Shareholders and Coddles Capitalism (2017). p. 196 Bottom.

    Also, from an investor's point of view, limited liability frees investment
  shareholders from the burden of involving themselves in the daily operation
  of the corporation. The contributed capital is transferred to the corporation
  where a board of directors and executives are to take charge of it. The corporation is duty-bound to chase profits, that is, the very efforts the
  would have made on their own account will still be made. But the contribu-tors of capital do not have to expend any effort of their own. In other words,
  limited liability is good because shareholders do not have to do anything.
    Two further arguments are made in favour of limited liability. The first
  arises directly from the fact we are supposed to like the idea of a thriving

p. 197

  market in which shares can be sold and bought. Limited liability helps that
  cause by eliminating some of the volatility that might otherwise prevail. In the
  absence of limited liability, less-well-off investors might invest in higher-risk
  investments than would wealthier ones, because they have less non-invested
  assets to lose. Wealthier investors would then have a different appraisal of
  what makes a share's price affordable than their less wealthy comrades would.
  This could lead to unpredictability in the valuation of shares and, therefore,
  to less attractive stock markets.2 Here the assumption is that robust stock
  markets are a plus for the economy—a highly contestable assumption.

I know that  the rich are more likely to be able to afford investment advisors who can help them appraise share prices differently (e.g. more accurately), and who don't cater to the poor.

But can someone please expound the emboldened sentence? How does the poor's larger investment in riskier investments, affect wealthier investors' appraisal of what makes a share's price affordable?


texts: Are there data for the evolution of global economic inequality

texts:
Please excuse my ignorance of economics. I recently learned about the Gini-Coefficient as a measure of the economic inequality in a country. I have since seen several plots of this coefficient over time, each for an individual country. The following is from Equality trust and concerns the UK.

Another plot, concerning various countries, is found here:

At first sight, it appears impossible, to construct such a curve for the entire world. Yet, in discussing extreme poverty,  I recently learned that incomes can be adjusted to equal purchasing power. Naively it seems, one could measure economic inequality globally. So, are there such data concerning the world as a whole? I know there are maps with countries colour coded by Gini, but this is not what I mean.

My interest is not limited to Gini, if there is another measure, by which the global temporal evolution of inequality can be captured, please tell me!


texts: Prove the budget correspondence is upper hemi-continuous

texts:
Let $p \in \mathbb{R}_+^L$ be price vector and let $w \in \mathbb{R}_+$ be wealth of the consumer. Define the Budget correspondence $B(p,w) =\{x \in \mathbb{R}_+^L : p\cdot x\le w  \}$ . How to prove that this budget correspondence is upper hemi-continuous?

A correspondence $Γ:R_+^{L+1}+→R^L_+$ is upper hemi-continuous if, $(p_n,w_n)→(p,w) $ and $x_n \to x$ where for each $n$ it's true $x_n \in
\Gamma(p_n,w_n)$, will ensure $x \in \Gamma(p,w)$.

I've seen a possible solution using Bolzano–Weierstrass theorem by Mark Dean at the following link http://www.econ.brown.edu/fac/mark_dean/Maths_HW4_13.pdf. But I failed to understand the last step in his approach where he claims that if every sequence $x_m \in B(p^m, w_m)$ has convergent sub-sequence converging to a point in set $B(p^*, w^*)$, then we have hemi-continuity for budget set, aren't we supposed to show that $x_m$ converge to $B(p,w)$? Am I missing any theorem?


texts: What to do for missing points in CPI time series?

texts:
I am looking at CPI datasets for developing countries which have gaps in them.

For each country I have two time-series with annual averages for years 2000-2013: i) General/Overall CPI and ii) Food CPI. I'm also assuming that Food CPI must have some relationship with the General/Overall CPI since the Food category has its own weight in the General CPI.

Now, I have two types of cases, some such as: http://imgur.com/a/9z7o8#1 where gaps are between values. I'm assuming I can interpolate here, if so, how would I go forward with this? I also have to deal with more complicated cases such as: http://imgur.com/a/9z7o8#0, any suggestions in this case? Would a simple extrapolation even make sense here?

An option for my first case that I read (on BLS) is taking the geometric mean of the year immediately before and after of the missing value. Other people have suggested I should predict the missing values by a simple regression model of the CPI on the GDP deflator for that year (which I do have).

Also, in some cases, gaps in annual averages exist because the monthly data needed to calculate these averages is incomplete. So say I only have 2006 data for Russia for months Jan-June, then the annual average data point is missing in the data series. I assume I can just take a simple average of the available months and impute that for 2006?

Thanks in advance


texts: Can all the regressors be endogenous in a given model?

texts:
I'm trying to estimate the following model:
Labor demand=f(wages,lagged labor demand, GFCF, GDP, trade share, labor productivity, real exchange rate)... (1)
Wages= f(labor demand,lagged wages, GFCF, GDP, trade share, labor productivity, real exchange rate)...(2)

When i run endogeneity test in stata and dumitrescu hurlin test in Eviews, they say that all regressors are endogenous. Is this something normal or I'm doing something wrong?
Eagerly waiting for a reply.


texts: How to choose instruments for GMM estimation?

texts:
I have a linear regression with one dependent variable and ten INdependent variables. I want to estimate this relationship using GMM, but I need at least ten instruments.

Can I use the same dependent variables as instruments for the regression? If not, how would I go about choosing instruments in such a case?

EDIT: my research studies reported generalized trust levels in 77 nations and has covariates such as lnGDP2013 lnPopulationSize2014 dummy variables for history of legal institutions from: Germany, Scandinavia, Britain, France, Germany, a dummy variable for whether or not a nation was involved in the transatlantic slave trade and a dummy variable for whether or not a nation was colonized by Europe in the last 300 years.

I have transformed the dependent variable from a percentage TRUST = Percentage of people who answered that 'most people can be trusted' when surveyed to ln(TRUST/1-TRUST) which gives residuals whose estimated kernel density is roughly normal.

In addition I have a few other covariates such as probability of two individuals chosen from a nation being of the same ethnic group.

EDIT2: I've parsed the model down so I am using GMM to explain the impact of whether or not a nation send or received slaves during the transatlantic slave trade on reported generalized trust levels using Africa as an instrument for whether or not a nation sent or received slaves. I can argue that being an African nation in and of itself should not having a dampening impact on trust but would be correlated with the likelihood that a nation was involved in the transatlantic slave trade.


texts: Wages in Solow growth model with savings = 0

texts:
I am trying to understand the change of wage rate and rental rate in the Solow growth model with s = 0. It is clear that capital per capita will approach 0 (due to depreciation of capital). Also is clear to me the fact that the rental rate will rise because of decreasing marginal returns assumed on the production function. Since factors are paid their marginal products in case of Constant Returns to Scale, rental rates rise.
I am confused about the marginal product of labor overtime in a general setting. For example if I take $F(K,L)=K^aL^{1−a} ,0<a<1$ , then I can see that marginal product of labor will fall if we assume constant or increasing labor force. But I am unable to show this for a general $F$ with CRS.


texts: Linking creeping inflation to industrial revolution

texts:
The russian wiki on price revolution says Ползучая инфляция стала тем стимулом, который привёл в конечном итоге к промышленной революции, which translates to in the end result, the creeping inflation led to the industrial revolution, but it doesn't explain how exactly, and it's not obvious to me.

The only explicit link between the two that I could find is in The ‘price revolution’ of the sixteenth century, saying:

  The conclusion reached was that the rise in prices <…> greatly encouraged the industrial entrepreneur and promoted the 'rise of capitalism', because commodity prices rose much more than wages in the latter half of the 16th century. This was taken as a proof of decreasing costs and radically widened profit margins in industry.

I thought the industrial revolution, among everything else, was about replacing human labour with machines. The process ended up being cost-effective in the long run, but it must have been expensive initially.

If, according to what I've been finding, the labour was actually getting cheaper due to inflation and lower wages, what was the incentive to move to the machines anyway? Striving for quality (and moreover, confidence that there will be an increase in quality?)

How did the creeping inflation linked to the price revolution cause the industrial revolution? Or is the statement wrong?


texts: Does IMF consider the international reputation of a country?

texts:
Hi I have three question below which I tried searching on internet and read a lot of literature as well. Besides all the literature sources I need to know some practical knowledge of people out there.

Does IMF consider international reputation, debt repayment and defaults of a country when they lend money?
What arguments can we form according to Michael Tomz reputation theory and the lending decisions of IMF?
Do other international financial institutions consider history of defaults and repayments when lending  money?


texts: Will a Free Software Society ever become a reality?

texts:
I have gone through this question regarding the economic sustenance of the GNU Software and I think it is the foundation of my question.

Below is a small excerpt from the GNU Website which states the four principles
the Free Software Foundation lays its foundation on.

The freedom to run the program as you wish, for any purpose (freedom 0).
The freedom to study how the program works, and change it so it does your computing as you wish (freedom 1). Access to the source code is a precondition for this.
The freedom to redistribute copies so you can help your neighbor (freedom 2).
The freedom to distribute copies of your modified versions to others (freedom 3). By doing this you can give the whole community a chance to benefit from your changes. Access to the source code is a precondition for this.

A program is free software if the program's users have the above four essential freedoms.

I believe the above principles will :

lead to better transparency regarding how the software works.
fuel new ideas, which will lead to better customized software.

I couldn't ,however, think of the economic hindrances for :

Setting up a Free Software Society.
If set up, the survival of such a society.

A society where all the players abide by the above FSF principles is
what I call a free software society. Well, this is my terminology indeed.

Any suggestions are appreciated.


texts: Who were the first economists arguing that utility maximization is the core of rationality and economic behavior?

texts:
I am looking for the first economists arguing that maximizing utility function is the iff condition of rational behavior.
I've learned that neoclassical economics is founded on this argument. Is this still the mainstream - Do people still believe that rationality is utility maximization and utility maximization is rational?
Linked question: Who is the first one to equate "rational" with "complete and transitive preference"?


texts: what percentage of a banks money do they lend

texts:
Say a bank has 1 billion dollars deposited by individuals with bank accounts. How much of this does the banks lend/invest? Obviously it can't lend all of it or when I go to the bank there would be no money for me to take out. I realize this probably varies between institutions but in general about how much.

Also, what factors would contribute to the percentage they lend relative to the amount the bank has. For example, interest rates, inflation etc.


texts: Does random sampling cause zero conditional mean?

texts:
In the lecture notes of my development economics class, it says that
" In the regression model : Yi = β0 + β1Xi + ui,
if Xi is randomly assigned, then Xi
is independent of ui, i.e., E(ui|Xi) = 0, so OLS yields an unbiased estimator of β1."
And the professor says the same thing in his lecture recording.
I really don't understand this statement, because in econometrics (linear regression part)
I thought random sampling and zero conditional mean (E(ui|Xi) = 0) were two separate assumptions which led to the OLS unbiased estimator theory, not one affecting the other.
But the lecture note is saying that random sampling causes zero conditional mean, instead of my
previous notion that the two are separate assumptions which are used together to derive the unbiasedness.
Is the lecture note correct in that random sampling actually causes zero conditional mean? If it is, could anyone explain to me why this is the case instead of them being two separate assumptions as stated in a
standard econometrics textbook?
random sampling causes the sample Xis to be iid but that still doesn't have anything to do with ui, and I thought that was why the additional assumption of zero conditional mean was added to ensure the unbiasedness of the OLS. I would appreciate it if someone could tell me what the lecture note is trying to say here.


texts: Considering Hotelling's model of linear city and two vendors, we know that by IESDS we end up having that the solution to the game is the midpoint for both vendors yet if we just consider dominated strategies, those would be the corners, right?


texts:
I am stuck at a very simple problem:

Suppose, I am running out of insurance, and as a result, I am incurring a the cost of A with event 1 + the cost of B with event 2. Now, I go ahead and buy an insurance that will protect me from event 1, but will incur me a total cost of C. I will remain vulnerable to Event 2.

What is the total profit I am receiving from making the investment.

Logical calculation is,
Prior total cost: A+B
New total cost: B+C
Total profit: (A+B)-(B+C) = A-C

But my mind is constantly pesking me with the total profit to be: A-B-C.

I am essentially doing cost-benefit analysis.
Can someone please tell me where I am wrong?

I know my benefit function to be A, and not A-B. Please indicate what is wrong.


texts: What are the pros and cons of eliminating corporate taxes?

texts:
I recently heard a story on npr about economic policy changes that both liberal and conservative economists definitively agree on.  Among other things, complete elimination of corporate taxes was mentioned.

I'm curious to know more about what the consequences of such a policy would be, both positive and negative.
Particularly, i want to know how this could possibly benefit the middle and lower echelons of society, not just the wealthy.  I'm curious if there are any benefits to the government as well, since they stand to lose income by this change.

I'm not looking for answers appealing to political ideology or speculation.  I want solid answers backed up by sound theory and empirical evidence.


texts: intuitive interpretation of the marginal return/productivity of capital being less than one

texts:
Let's assume you have a production function, f,  and you want to know how the output changes with respect to capital, everything else constant (ceteris paribus), so you want to know the marginal productivity or return on capital.

This is done by taking the partial derivative of capital to output.

$$  \frac{\partial y_t}{\partial k_t}  $$

Usually, in most models, the result will be a value between 0 and 1. However, this means that, all other variables being equal, for one extra euro (which comes out of nowhere, I guess, given that all other variables should be the same: ceteris paribus condition), output increases with less than this one euro..., right? I don't get the intuition that this value is less than one, I would it expect to be higher than one, at least. I mean, did 80% of it just vanish?

On wikipedia it is defined as: The marginal product of capital (MPK) is the additional output resulting, ceteris paribus ("all things being equal"), from the use of an additional unit of physical capital. Mathematically, it is the partial derivative of the production function with respect to capital.

I'm having some difficulty with the meaning of "additional" in this definition. It's not additional to this one extra euro of capital out of nowhere, right? This one euro is really transformed in only like e.g. half a euro in output: e.g. capital +1 ==> output + 0.5.

In contrast to this marginal productivity of capital, you can also calculate the direct partial effect of capital on output, which e.g. for a Cobb-Douglas function is given by the elasticity (relative change of output given 1% relative change of capital) parameter for capital (it's power).
Yet another way to express the influence of a change in capital is the full effect: in some models, also other variables change when capital changes, e.g. labour, technology and so on, this is called the full effect.

I just mention these effects to contrast them with the calculation and interpreatation of the return on capital.


texts: Log-linear version of current account equation

texts:
I am working on my thesis, doing a two-country model with traded and non-traded goods considering incomplete asset markets and imperfect pass-through. In a sense, I am following Benigno & Thoenissen (2008).

I have been having troubles in log-linearizing my current account equation, which is given by

$
\begin{gather}
    \frac{S_tB_{F,t}}{P_t(1+i^*_t)} \frac{1}{\Theta\Big(\frac{S_tB_{F,t}}{P_t}\Big)} - \frac{S_tB_{F,t-1}}{P_t} + \frac{P_{H,t}}{P_t}Y_{H,t} + \frac{P_{N,t}}{P_t}Y_{N,t} - Z_t
\end{gather}
$

where $\Theta(\cdot)$ is the cost function that drives a wedge between the return on foreign currency denominated bonds and $Z_t = C_t + I_t$.

I have seen in different papers that it is standard to assume that $b_t = \frac{S_tB_{F,t}}{P_t}$ and $\Theta(b)=1$, where $b$ is the steady state value, and that the steady-state ratio of net foreign assets to GDP, which would be in my case $\bar{b}/\bar{Z}$ is assumed to be zero.Let $\varepsilon = -\Theta '(b)Z$.

Moreover, I have seen that it is standard to say that $\hat{b}_t$ is the deviation of foreign currency denominated bond holdings from their steady state, relative to domestic GDP. Hence, the log-linearized expression of the current account takes the form of

$
\begin{gather}
\beta \hat{b}_t = \hat{b}_{t-1} + ...
\end{gather}
$

My question is how can I log linearize the left hand side of my current account expression? Because from what I have read, a normalization with the GDP is used, so $\hat{b}_t$ is not a typical log-linearization per se.

I would appreciate very much any help.

Alejandro


texts: How to derive the measurement equation for the state-space representation of a DSGE model?

texts:
DSGE models, after log-linearisation, have a state-space representation.
In this representation, in most papers, the measurement/observation equation is simply stated.

I'm wondering how one deduces that equation, or if it's something ad-hoc, how does one proceed, or what guidlines should we use?

Any help would be appreciated.


texts: What are some sectors in which nations benefit from collaborating with other nations?

texts:
For instance, if a nation is an ally (diplomatic/trade) with another nation, the average payoff each nation gets is higher than the payoff they would gain individually?

For instance, comparing to individuals and chat applications, if one user uses chat app A, and another uses B, they can't communicate. But they can communicate with all friends who use the same chat app. The payoff is directly proportional to the number of friends which use the same application.


texts: Perfect multicollinearity when estimating a gravity model

texts:
everyone!

I am estimating a gravity model in order to analyze the impacts of tighter environmental regulations on international trade. More specifically, I am analyzing Brazil's trade flow.

My (linearized) model is as follows:

$ \ln(EXP) = \ln(GDP_O) +  \ln(GDP_D) +  \ln(POP_O) + \ln(POP_D) + \dots $

In other words, the exports from Brazil (origin) to a country D (destination) depend on both countries GDPs,Populations, Total Area and  another couple of variables.

My problem is: because Brazil is the origin for the exports to all other countries, GDP_O, POP_O and any other variables representing Brazilian data will be equal for all observations and as such there will be perfect multicollinearity.

How do I circumvent this? Every gravity model uses both the exporter and importer variables in order to explain the bilateral trade flow.

EDIT: See for instance the estimation carried out here:  https://drive.google.com/file/d/1DczfoFI_mkI8Tm4H0WcaVZTz9ZXLGb2K/view?usp=drivesdk

EDIT2: Specifically, here:

[Regression table] (https://i.stack.imgur.com/TQDA3.png)

I appreciate any help!

Kind regards,
Pedro!


texts: Prove that in presence of many goods, the law of DMRS implies that at least one good must be a net substitute for any other good

texts:
I've been reading a book where the author claims that "if there are two goods they are always net substitutes. Along an indifference curve an increase in price of good 2 leads to less of good 2 and more of good 1 being consumed when utility is maximized. When there are more than two goods, the law of diminishing marginal rate of substitution implies that at least one good must be a net substitute for any other good."

The first part can be proved easily using graphs, it's the second that I couldn't prove mathematically.

Source of the quotation has been attached here, Pg-104.


texts: How can an economy pay for all the products it produces?

texts: How can the totality of an economy pay for all the products it produces, if the initial amount of money in the system (before the profits on all of the products is realized) is less than the amount of money after all of the products are sold (at a profit)? The arithmetic does not seem to make sense. Any suggestion out of this riddle?


texts: Fair value that a risk averse individual would pay to enter a gamble

texts:
Introduction

Assuming an individual (or corporation) with risk aversion and a von Neumann-Morgenstern utility curve and given a gamble g with E(g) > 0.
From what I researched, certainty equivalent is defined as the amount of wealth we could offer with certainty that would make him indifferent between accepting that wealth with certainty and facing a gamble g (Jehle and Reny, 2011, Chapter 2, pg. 112).

From that definition, the certainty equivalent is the amount of value that the individual would accept to give up on the gamble g.

Questions

Can you apply the certainty equivalent concept to calculate the fair value that the individual would be willing to pay to enter the gamble g (instead of giving up on the gamble)?
In that case, is it the same value to give up on the gamble?

References

Jehle, G. A. and Reny, P. J., 2011. Advanced Microeconomic Theory (3rd Edition). ISBN-10: 0273731912. Pearson; 3rd edition (April 30, 2011).


texts:
I am not sure how well suited my question will be to the platform, but it's a question nonetheless, concerning economics.

I am, rather we are, group of people moderating a real world text-based RPG. Up until now we had pretty straightforward economy mechanics; we had set growths, and all players had to do was to compound it. The system soon ran its course as the game gained in popularity, and with people wanting a system which accounts for in-game decisions, policies, etc.

We've been using GDP PPP rather than market exchange rates. Because our game extends in future, and developing a currency market is pretty much impossible for us.

That said, GDP PPP figures lead to inflated budgets and massive militarization all over Asia, which are hard to account for. We're focussed on the diplomacy side of things, thus military industrial-complexes and conventional industries greatly affect our play.

In the end, my question boils down to: What do we use (GDP PPP v. GDP MER) for an RPG that aims to simulate real world diplomacy?

Note that we want to go way into future, possibly 2050s, and have pretty much no way to simulate a currency market. But, at the same time, we would want our game as realistic as possible. Accounting for real-life volatility in markets will be hard, but we'll up to it if there's a way.

If you guys have anything to contribute, please do. And, thank you.


texts: How will Coronavirus affect Social Security solvency?

texts:
The Coronavirus (known by younger millennials as the "Boomer Plague") is estimated to have a cost of life between 100,000 - 240,000 Americans. According to the CDC

  approximately 80% of deaths occurred among adults aged ≥60 years

If we're to assume those numbers, 80,000 - 192,000 people over the age of 60 will die prematurely as a result of this virus, how will this effect Social Security solvency in the short-term?


texts:
I am reading Dynamic scoring: A back-of-the-envelope guide by Mankiv and Weinzierl (here) and on page 1420, I don't get the FOC in equation $(10)$, which says $r=...$.
I do get the FOC with $v'(n)=...$ by using Lagrange.

I found the same FOC in a paper from Ferede (Dynamic Scoring in the Ramsey Growth Model, here) and he says, that it

  is obtained by combining the first order conditions of the utility
  maximization with respect to capital and consumption (page 5).

But I only observe $\lambda=-c^{-\gamma}e^{gt(1-\gamma)}e^{(1-\gamma)v(n)}$ from the FOC w.r.t. consumption and $-\lambda[(1-\tau_k)r-g]=0$ from the FOC w.r.t. capital.

How am I supposed to get $\dot{n}$ and $\dot{c}$ there?

Well let me show you, what I have got: The Lagrange-function is given by:

$$L=\frac{1}{1-\gamma}[c^{1-\gamma}e^{gt(1-\gamma}e^{(1-\gamma)v(n)}-1]-\lambda [(1-\tau_n)wn + (1-\tau_k)rk - c - gk +T - \dot{k}]$$

So the FOC w.r.t. consumption is given by $\frac{\partial L}{\partial c}=c^{-\gamma}e^{gt(1-\gamma)} e^{(1-\gamma)v(n)}+\lambda=0$, while the FOC w.r.t. to capital is $-\lambda[(1-\tau_k)r-g]=0$.

So the equation for $\dot{\lambda}$ is based on the equation $\frac{\partial \lambda}{\partial t}=\frac{\partial \lambda}{\partial c} \frac{\partial c}{\partial t}$. And you are fully differentiating it.

I hope someone can help me.

NEW:
So again: $\lambda=e^{-pt}u'(c)$. So you are indeed right with your equation after your words "Then substitute back in the FOC for consumption", but then you substitute it to the FOC wrt to k: $\dot{\lambda}=\lambda[g-(1-\tau)r]$, so we get $\gamma \dot{c}/c - (1-\gamma)(g+v'(n)\dot{n})+p=g-(1-\tau)r$, so that the signs don't fit anymore and this unfortunately leads to something else than equation $(10)$.


texts:
An example of the terminology that surrounds discounting that confuses me can be found in "Investment and Hysteresis" by Dixit:

Let future revenues be discounted at a positive rate $\rho > 0 \ldots$ Then, given a current level $R$ of revenues, the expected present value of the discounted future streams of revenues is $R / \rho$.

Hence, the net present value of the investment is quantified as $R/\rho - K$, where $K$ is the sunk cost.
What I would like to understand is what this formulation has to do with exponential discounting; in particular, where is the sum over the time periods (alluded to in the phrase "future revenue streams", but also made clear in the context of the paper)? Is this some kind of economist shorthand?
This matters because, as far as I can see, he uses the exact expression above for the NPV in the key derivation in the paper, which suggests to me that I've misunderstood his concept of "discounting".
(This notation is not unique to this paper: I've encountered this in several places; cf. Allcott and Greenstone "Is there an Energy Efficiency Gap".)


texts: Depreciation and second-hand markets for bicycles

texts:
Probably the answer to this question is "business as usual", but I've observed of late that the market for bicycles is pretty weird.

You can buy a brand new factory-produced bicycle in the US (I'm really only talking about the US here) for anywhere from \$50 (when not on sale) to maybe \$10,000 (depending on where you want to draw the line between "production" and "custom" bikes).  Some of this difference is due to actual quantifiable value -- the more expensive bikes generally are lighter, handle better, have advanced features, and are marginally more durable (though the cheap bikes are remarkably durable).  However, much of the difference is clearly "glitz" -- the latest features, fancy (though oddly impractical) arrangements of spokes in the wheels, etc.

More to my point, however, is what happens to the value of a bike once you "drive it off the lot".  A "moderately priced" bike (say \$500-1000) will lose (very rough figures -- I've not done any rigorous research) maybe 50% of its value each year, such that it's market value (if in perfect condition) is less than \$50 after 5 years.  The net result is that lower-end bikes are not deemed worth selling when unused, and they tend to accumulate (even worse than other possessions) in basements, garages, and backyard sheds.

I became involved in this "market" because I work with a small group which reconditions used bikes and distributes them to various charities (primarily Christmas Anonymous).  Our small group, consisting of about 8 active members working two afternoons a week 8 months out of the year, manages to rehabilitate 200-300 bikes a year.  But we get donations of at least twice that amount, with the surplus being sold for scrap.  Currently we have so many bikes that many must be stored outside, and it is somewhat disheartening to see, say, a very nice looking bike in good condition, which sold originally for maybe $800, standing in a field of weeds, rusting away.

So I get to thinking that there must be some economic principle at work here, beyond simple supply-and-demand, to cause such a skewed market.  Why can something of such inherent value (and so highly valued by the purchaser when new) become valueless so rapidly?  But I admit that not only do I not have a clue what it might be, but I find myself failing to even describe my perplexity adequately.

What principles are at work here?  Is there anything "interesting" or instructive in the scenario?

(I'm guessing that many will instantly shout "Technology!" -- that technology makes last year's bike much less valuable -- question answered!.  But I've observed that "technology" is the last (or is it first?) refuge of scoundrel economists -- technology hardly ever has the economic effect claimed.)


texts:
Suppose that a household borrows from the bank with %2 interest rate and uses the money for paying rent;

Is this a Consumption?
May households borrow money from the bank for consumption, not investment purposes? (I haven't seen such thing in a circular flow graph, that's why I'm asking)
Is factor payments are being paid to another household who lends his savings to the bank?
Is this payment of saving is counted as lender's income?
What kind of approach of GDP would borrowing money from the bank for paying the rent, and interest income earned by another househould?


texts: Establish demand curve with infrequent sales

texts:
I sell variations of an item on eBay. It is an unusual commodity which I purchase in bulk lengths and then cut to various sizes. They come in about 20 types, which I then sell as 10 different lengths, giving a total of 200 variations.

My goal is to determine what price I should charge for each, to maximise monthly profit.

The problem is I only make an average of one sale per day. I have no idea how I can establish a demand curve for the products, given such limited data. (Some variations I only get one sale per 18 months!)

What techniques could I use for this problem?

How could I go about establishing the most profitable price for each of the variations, with such limited information? (Given known costs).

The only clear idea I have is this:

Treat all 200 variations as a single product, and vary all their prices simultaneously, to derive a single demand curve. So for example, one month I might set all prices to generate 10% profit on top of the costs, then next month, set all prices to generate 20% profit, and so on, and this way establish what price generates the highest monthly profit.

But the variations tend to have wildly different applications, as well as, I expect, alternative products that can satisfy the customers' requirements, and so on - so having a single demand curve could leave significant profits untapped.

The only other idea I have is to profile the demand curve for each item in a different way:

For each product, take an example: one that only sells approx every 6 months on average: On each sale, if the time since the last sale was 6 months, I divide the total profit made on that item by 6 - or for a product that sold twice in one month, multiply by two. And then each time there is a sale I can some how establish the demand curve for it.

But the snag is for a product that sells infrequently, the demand curve could be static, but obviously this does not mean it would sell, say, once every 6 months like clockwork. So it could take years to establish a demand curve for that variation.

I'm wondering if I should entirely forget about the demand curve and concentrate instead on a marketing-oriented approach, for example:

Surveys: (How I would phrase this I'm not sure - I doubt customers would tell me the maximum they'd pay!)
Market research: plot graphs of how much other retailers/distributors charge for each variation. (Although I have seen very few indeed that sell small lengths such as those that I offer)


texts: Non-linear budget constraints written as union/intersection of linear budget constraints

texts:
Let $w$ denote wage. Let the price of each unit of food be $p_1$, the price of the first $M$ units of electricity be $p_2$ and the price of each unit of electricity over $M$ units is $q_2$. $M$ is fixed. My question is regarding how to express the (non-linear) budget constraint set $B_{p_1, p_2, q_2, w}$. I know one way is as follows:

$$B_{p_1, p_2, q_2, w}=\begin{cases}p_1x_1 + p_2x_2 \le w & \text{ if } x_2 \le M \\ p_1x_1 + p_2M + q_2(x_2-M) \le w & \text{ if } x_2>M \end{cases} $$

However, I am told that the budget set above can also be equivalently expressed as the union or intersection of linear budget sets. Namely, if $p_2<q_2$, then the budget set is

$$\{x \in \mathbb{R}^2: p_1x_1+p_2x_2 \le w\} \cap \{x \in \mathbb{R}^2: p_1x_1+q_2x_2 \le w+(q_2-p_2)M\}$$

If $q_2<p_2$, then the budget set is

$$\{x \in \mathbb{R}^2: p_1x_1+p_2x_2 \le w\} \cup \{x \in \mathbb{R}^2: p_1x_1+q_2x_2 \le w+(q_2-p_2)M\}$$

How is the union/intersection expression derived? I can not see the connection between my expression and the above one at all.


texts: Why does 'government consumption'in NK models not add to utility

texts: In almost all NK models public government consumption (like coastal defences) or private government consumption (like primary and secondary education) is by default 'wasteful'. Government consumption as we measure it is however defined as production of goods and services by the government which are used/consumed by households). But it seems silly to assume that a privately paid nurse is, by definition, productive while a government paid nurse (working for instance at the NHS in the UK) has zero productivity. So, why is government consumption (again: government production which is consumed by households) not included in 'utility'? Same for government investments. Addendum: not including it means that institutional differences between countries (the NHS!) make it impossible to use NK models to compare countries.


texts: Does GDP typically refer to Real GDP or Nominal GDP?

texts:
I previously believed GDP typically refers to nominal and real GDP is specified explicitly. However, in data sources like this, does it refer to Real GDP growth or Nominal GDP growth? Real GDP growth seems to be the more useful figure which makes me reconsider what GDP refers to by default.
Edit: Apologies I originally posted the wrong link. The link is now updated to the world bank data source.


texts:
It is given that economy is at equilibrium at $ Y_0 $ = 1000. If Government undertakes a fiscal change so that tax rate $t$, increases by 0.05 and government spending increases by 50, will the budget surplus go up or down?

I tried doing it this way:

$$Y = C( Y - tY ) + I + G$$

Differentiating the above equation I got

$$dy = \frac{di+ dg - c'y dt}{1- c'(1-t) }$$

Where $c'$ is mpc, $t$ is tax rate.

Also,

$$BS = ty-G- TR$$

So,

$$dBS = tdy +ydt-dg-dtr$$

Now, $Y=1000, dt = 0.05, DG= 50$. Plugging these first into $dy$ and then using $dy$ in $dBS$, I got the following:

$$dBS = \frac{50t(1-c') }{(1-c'(1-t) }$$

Therefore the budget surplus goes up.
Is my method correct? Also, what could be the economic intuition behind this?
This is not a homework assignment. I am currently preparing for an upcoming entrance exam and was trying out a few back questions from dfs for conceptual clarity.


texts: In April 2019 our economy created 263000 new jobs, however, total employment went down from March to April by103000 jobs. Why this difference?

texts:
https://tradingeconomics.com/united-states/employed-persons

This link shows that total employment declined from March to April even though we added 263000 new jobs. Can someone explain why?


texts: What happens with corporate deposits when a bank goes bankrupt?

texts:
When a bank goes bankrupt the money of the private individuals who saved in that bank are lost but a part of the money are guaranteed by the government.
But say for example Apple has 10 billion dollars in an account at Bank of America and BoA goes bankrupt.
What happens to Apple then? Can they get their money back?


texts: Is single-peaked preferences necessary for majority rule to be transitive and yield non-empty choice set?

texts:
I understand that when individuals have single-peaked preferences, majority rule will be transitive and the choice set will be non-empty. So single peaked preferences is a sufficient condition.

Is it also necessary? If not, what other domain restriction can given majority rule a non empty choice set?


texts: Study whether $\succsim$ represented by $u(x)=\lfloor x \rfloor$ is continuous

texts:
Using the following definition of continuity: $\succsim$ is continuous if for any bundles $x,y,z$ such that x$\succ$y$\succ$z, there exists $\alpha \in (0,1)$ such that $\alpha x + (1-\alpha)z \sim y$.

I am unable to show continuity/not continuity using this definition.


texts: How to show that a leontief utility function is homothetic?

texts:
usually what i do to show that a utility function is homothetic is by either showing that the function is homogeneous or if the MRS is homogeneous of degree 0.
However the MRS is not defined. So im not even sure if the function is homogeneous.
What i have been thinking is that it has something to do with the expansión path, as it is always constant. But how about the homogeneous degree?
The specific function that i have is U(X,Y)=min{2X,6Y}
Thank you


texts: "If $\lambda$ is greater than than 1, the system explodes." Why does the system explode?

texts:
David Romer in his textbook Advanced Macroeconomics (Third Edition) writes regarding the speed of convergence of the Diamond model the following:
(Pg. 83)

Equation (2.60) [$k_{t+1}={1\over{(1+n)(1+g)}}{1\over{2+\rho}}(1-\alpha)k_t^\alpha$] gives $k_{t+1}$ as a function of $k_t$. The economy is on its balanced growth path when these two are equal, that is $k^*$ is defined by
$k^*={1\over{(1+n)(1+g)}}{1\over{2+\rho}}(1-\alpha)k^{* \alpha}\space\space\space\space\space\space\space\space\space\space\space\space$ (2.61)
Solving this expression for $k^*$ yields
$k^*=\left[{(1-\alpha)\over{(1+n)(1+g)(2+\rho)}}\right]^{1 \over{1-\alpha}}\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space$ (2.62)
[...] We can also find out how quickly the economy converges to the balanced growth path. To do this, we again linearize around the balanced growth path. [...] Thus:
$k_{t+1} \simeq k^*+\left( {{dk_{t+1}}\over{dk_t}}\Big{|}_{k_t=k^*}\right) \left(k_t-k^*\right)\space\space\space\space$ (2.64)
Let $\lambda$ denote $dk_{t+1}/dk_t$ evaluated at $k_t=k^*$. With this definition, we can rewrite (2.64) [...]
$k_t-k^* \simeq \lambda^t (k_0-k^*)\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space\space$ (2.65)
Where $k_0$ is the initial value of $k$

My Question
(Pg 84)

[...] if $\lambda$ is greater than 1, the system explodes

What does it mean the system explodes when $\lambda$ is greater than 1? Why does it explode when $\lambda$ is greater than 1?


texts: Economics of clubs(sport gym, language course, etc)

texts:
I am looking for economic research, theory or empirics, on production/profit maximization/competition for firms producing goods with network effects, such as clubs in which every one's utility depends on the number of other participants. As a producer, my goal is not only to produce the good, but to ensure that enough people consume it at the same time.

What are key papers in this area? What are keywords for me to search for Relevant papers?


texts: Example of countries restricting companies registered in tax havens?

texts:
I would like to know which countries do not allow companies with offices registered in tax havens to operate on their territory. And if there are such countries, to what degree their restrictions apply.

Probably the former communist countries had lot of restrictions against tax havens (because they were isolated from the West anyways), although I heard of cases when communists made joint ventures with Western corporations which could very well had offices in tax havens.


texts: Demand Function And Inverse Demand Function Representation in Books

texts: Demand Function tells us how demand for a good varies as price varies. Inverse Demand Function is inverse of the demand function. Consider Q=210-3P , This is clearly demand function . So on X axis we should put price and on Y axis we should put Demand i.e quantity. But in all the books in demand function Price is Y axis. Shouldn't that be inverse demand function?(P=70-Q/3)


texts: When would a marginal cost curve be vertical? I understand this happens when the marginal cost jumps, from say 0 to 100, but in such a case, I think there should be a discontinuity rather than a vertical curve.


texts: Is trading in the commodity futures much more riskier than trading in stock market futures?

texts:
My understanding is that the price of a stock at the stock exchange is determined by supply demand mechanics during trading hours, and the price of futures is determined by the price of the underlying stock. In effect its the price of the underlying stock that controls the price of the future(Black–Scholes model) The price of the stock-future is strongly coupled to the price of the underlying stock price.

Consider the commodity exchange where the  futures price of a commodity is determined by supply demand during trading hours and is not directly determined by the real price(current price of commodity available to the public).

Contrast the scenario at the stock exchange with that of the commodity exchange. As an example, if the current real price of copper is Rs 340 per kg in the shops. The price of the copper futures is in no way directly determined by real price of the commodity the way the price of a stock-future is determined by the underlying stock. Hence the futures price of commodity is weakly coupled to the real price of that particular commodity. Hence it may be said that the price of commodity futures is much more volatile/speculative in nature than price of a stock future. Correct me if my understanding is wrong.


texts: Does the stock market usually overshoot both ways?

texts:
I've loosened Lee Spelman's contention from "always" to "usually". I pasted her biography to prove she appears qualified.

Lee Spelman, managing director, is the Head of U.S. Equity. She led the Client Portfolio Management from 2003 until 2016. An employee since 1989, Lee was previously a senior research analyst in the U.S. Equity Research group with responsibility for the technology sector. She was also the global technology sector team leader. Lee holds a B.S. in economics from the Wharton School of Business at the University of Pennsylvania and is a CFA charterholder. She is a trustee of the University of Pennsylvania. She holds Series 7, 24 and 63 licenses and is a member of The New York Society of Security Analysts.

US stocks erase all losses for the year | Financial Times

US stocks have climbed more than 40 per cent from a mid-March low, with the Nasdaq up 10.6 per cent since the start of the year and the S&P 500 now little changed. The rebound has come in spite of the recession caused by the coronavirus pandemic and civil unrest in the US after the killing of George Floyd.
“The history of markets is that they always overshoot both ways,” said Lee Spelman, head of US equities for JPMorgan Asset Management. “What you’re seeing is an expectation of a V-shaped recovery and that may prove to be too optimistic.”
Stanley Druckenmiller, a former hedge fund manager, said that “the excitement of reopening is allowing a lot of these companies that have been casualties of Covid to come back and come back in force”.
Support by the US Federal Reserve has also helped to alleviate the economic strain. The central bank has slashed interest rates to zero, launched an unlimited bond-buying programme and announced 11 lending facilities.
“I would also say I underestimated how many red lines, and how far, the Fed would go,” Mr Druckenmiller said, in an interview with CNBC.


texts:
I'm currently analyzing the relationship between stock, bonds, and real estate returns in Germany. I've gathered my data and am planning on estimating this equation:

$\sigma_t = \beta_0 + \beta_1 R_{t+} + \beta_2 R_{t-} + y_t$

through a GARCH model. In the article where I found equation 1 (Chan and Chang, 2014), they
    have delineted the parameters as so: $R_{t+}= \max [0, R_t]$, $R_{t–} = \min
[0, R_t]$, and $R_t$ is the monthly return of stock, bond, or real
    estate. We use a three-month rolling return to calculate the
    standard deviation of the return." Does this mean they use the Max
    and Min of the series as parameters or the Max and Min of each
    rolling average across the series?


texts: Is there another name for marginal luxury?

texts:
My coworkers and I were talking about the concept of voluntarily paying more than you need to for something. As an example, I can buy a locally grown organic apple from the farmers market for \$3 or a conventional one from the grocery store for \$0.50. We can say that the \$0.50 apple is a basic level of consumption- society agrees that I deserve that apple as a human right (or, we can expand the argument to a basic level of consumption including shelter, food, etc). Since I paid \$3 instead of \$0.50, I paid an extra $2.50 for the luxury if it being a special kind of apple I prefer.

We called this amount "marginal luxury". Does economics have a proper name for it? Is there a reliable source of how much of an economy, say the US, is marginal luxury?


texts: What is the relationship between the disciplines of Economics and Economic Geography?

texts: Given the importance of natural resources in both Economic Geography and Ecological Economics I also wondered what the relationship was between these two in particular.


texts: How Switzerland has significantly high cost of living as compared to its neighboring countries?

texts:
Despite being a small country (area-wise), how Switzerland can sustain a high cost of living?

I get the logic that the pay of employees would be proportionally higher, so they can sustain a high cost of living. Not the entire country is mountainous, at the least the cost of living should be comparable to neighboring countries especially in the plains.

How does it be able to sustain the economy of border areas where people can do shopping in the neighboring countries?

Am I asking the right question? Clearly, there is some piece of the puzzle about Switzerland, that I don't get.


texts: Homogeneity of degree zero and normalization

texts:
One of the first assumption is that the demand function is homogeneous of degree zero. The reason and the proof is easy.

It should also be easy why this implies we can normalize the price of one good to 1, but I cannot see exactly what's going on.
A counterexample would be of great help i.e. a function with homogeneity different from zero showing that the normalization is not possible/leads to wrong conclusions.


texts: Deriving Simple Tax Multiplier with Calculus (Macro Ugrad)

texts:
It looks like I am making a calculus mistake here, and I am really banging my head against the wall.

Here is my work:

[img]http://i.imgur.com/e19Fmrx.jpg[/img]

I know I should be getting $dY/dT=-(MPC)/(1-MPC)$, where $MPC=dC/dY$
If this is at all helpful here is a picture of page 295 in 7th edition of Macroeconomics By Mankiw that briefly describes the process.

[img]http://i.imgur.com/VKPbZbz.jpg[/img]

It is confusing to me that he uses $C'$ for both terms on right-hand side when $C$ is composed of two arguments, so I decided to use Leibniz notation to see what is going on.

Thanks for help!
Chris


texts: How can difference equations with an infinite summation be represented in matrix form?

texts:
I have derived the microeconomic foundations of a dsge model and I've obtained the IS and NKPC. I would like to represent them in matrix form to study the system. However the problem is that both equation have in infinite summation. How can i proceed? Do I need to approximate, if possible, the infinite sum to a finite term?
\begin{equation}
 \tilde \pi_t = E_t \sum^{\infty}_{T=t} (A)^{T-t} \left[ B  x_{T+1} + C \tilde \pi_{T+1} \right].
 \end{equation}
\begin{equation}
{x}_{t}=\tilde{E}_{t} \sum_{T=t}^{\infty} D^{T-t}
 \left[F{x}_{T+1}-\sigma\left(\tilde{\imath}_{T}-\tilde{\pi}_{T+1}\right) \right]
\end{equation}


texts:
Consider a society of individuals who receive an income of \$10, 000 pesos if they are healthy and \$100 pesos if they are sick. There are two types of individuals: some who get sick with a probability of p and others who are sick with probability of p′ bigger than p. There are equal numbers of
  individuals of each type in the population. All individuals are CRRA expected utility maximizers
  with the relative risk-aversion coefficient equal to 1

  a) supposing insurance companies can observe the agents’ types, what are the actuarially fair
  rates they would charge each type for insurance?

a) R1= p, R2=p´

  b) supposing insurance companies can’t observe the types, what would be the actuarially fair rate
  they would charge if every individual were obliged to buy insurance ?

b) R=1/2p+1/2p´

  c) if only full insurance is available, which agents would insure at the rate in (b)? Does your
  answer depend on the probabilities of being sick?

c) Individuals who are sick because they have p´bigger than p

  d) given your answer in (c), would the insurance companies be willing to offer such a rate if
  individuals were free to choose, whether to buy insurance or not?

d) No, because they only attract sick customers.

  e) if an insurance company could offer people who choose not to be insured in (c) a partial insurance contract, can it profitably do so? What is the most insurance that can be offered.

e) By incentive compatibility constraint

  f) is your answer in (e) Pareto efficient? If not, could the inefficiency be resolved by forcing
  everybody to buy insurance? Explain

I can not answer f) Pareto efficiency


texts: What are the costs of requiring banks to have more equity?

texts:
In The Bankers' New Clothes: What's Wrong with Banking and What to Do about It (2013), Admati & Hellwig recommend much higher equity requirements:

Requiring that banks’ equity be at least on the order of 20–30 percent of their total assets would make the financial system substantially safer and healthier.

In contrast, under Basel III:

Banks’ equity can still be as low as 3 percent of their total assets.

Admati & Hellwig make some persuasive arguments. However, I am wondering:
What are the costs or trade-offs of requiring banks to have higher equity?
Admati & Hellwig repeatedly claim that there are no costs or trade-offs whatsoever (see quotes below). But if so, why wouldn't they recommend even higher equity ratios like 50% or even 100%? Why stop at 20–30%?
This leads me to think that there must be costs or trade-offs which they haven't mentioned. However, I am not sure what these are and hence my question.

if banks have much more equity, the financial system will be safer, healthier, and less distorted. From society’s perspective, the benefits are large and the costs are hard to find; there are virtually no trade-offs. ...
the view that there are significant trade-offs is flawed ...
long-term benefits of much higher equity requirements are large, and the costs are hard to find. ...
Best of all, these many critical benefits of significantly higher equity requirements could be obtained at virtually no cost to society. Taxpayers would save on subsidies, and the public would benefit from a more stable and healthier financial system. There are therefore no trade-offs associated with this approach. Society would obtain large benefits for free. [Emphasis added.]


texts: Would some help me fill in missing steps from a textbook exercise left for the reader

texts:
Question: Suppose $C_t=(1-s)Y_t-\lambda G_t$ where $s>\sigma$ as in the basic Solow model.
Out of the government expenditure , proportion $\phi$ is invested in public capital formation. Hence we assume $K_{t+1}=I_t+\phi G_t+(1-\delta)K_t$
$Y_t=K^{\alpha}_tL^{1-\alpha}_t$
$Y_t=C_t+I_t+G_t$
$K_{t+1}=I_t+(1-\delta)K_t$
$L_{t+1}=(1+n)L_t$
$G_t=\sigma Y_t$
In what case will the steady state level of capital per capita increase in $\sigma$
Attempt:
step (1) $\frac{Y_t}{L_t}=\frac{K^{\alpha}_t}{L_t}\frac{L^{1-\alpha}_t}{L_t}$ which equals $y_t=k^{\alpha}_t$
Using the same process for the national identity we get
The evolution of capital per capita is given by the following equation:
$(1+n)k_{t+1}=i_t+\phi g_t+(1-\delta)k_t$ which then goes to:
$k_{t+1}\approx i_t+\phi g_t+(1-\delta-n)k_t$
$k_{t+1}=[k^{\alpha}_t-c_t-g_t]+\phi g_t+(1-\delta-n)k_t$
Now, we can subtract $k_t$ from $(1-\delta-n)k_t$ and we get:
$k_{t+1}-k_t=-(n+\delta)k_t+\phi g_t+k^{\alpha}_t-c_t-g_t$
=$(n+\delta)k_t+\phi g_t+k^{\alpha}_t - [(1-s)k^{\alpha}_t-\lambda g_t]-[\sigma k^{\alpha}_t]$
= $-(\delta +n)k_t+\phi [k^{\alpha}_t\sigma]+k^{\alpha}_t-[(1-s)k^{\alpha}_t-\lambda [k^{\alpha}_t \sigma]]$
We can simplify this algebraically to:
$k_{t+1}-k_t= \phi [k^{\alpha}_t \sigma] + sk^{\alpha}_t+ \lambda[k^{\alpha}_t\sigma]+(\delta+n)k_t$
Finally divide both sides by $k_t$ and set the LHS equal to 0 and get the steady state equilibrium as:
$0 = \frac{\phi[k^{\alpha}_t\sigma]}{k_t}+\frac{sk^{\alpha}_t}{k_t}+\frac{\lambda[k^{\alpha}_t\sigma]}{k_t}-(\delta+n)k_t$
Comments: I am pretty sure my calculus is correct (perhaps save for the last equation. Can anyone confirm this for me?


texts: Structural shocks in economic models are unobservable and country-specific?

texts:
Let's consider an exogenous oil price shock ($e_t$) as an example in the following equation $oil_t = \rho \; oil_{t-1} + e_t$, where $oil_t$ is one variable in a VAR system. We normally want to recover $e_t$ based on some structural model we have for some given economy. So I guess that makes $e_t$ also country-specific, right?
So, for example, we cannot just look visually at oil-price time series data and say that oil price shocks are more volatile or less volatile. Like it depends on the economy of interest?
So although oil prices may be more or less volatile in general for a given period, it does not say anything about oil price shocks for a given economy, I guess. We need a structural model to recover the oil-price shocks to see how it behaves, right?


texts: Which metrics best characterise 'socialist' and 'capitalist' economies?

texts:
I am interested in finding some metrics that capture how 'socialist' or 'capitalist' a country was throughout modern history, and to include these alongside those in the gapminder dataset, to explore and examine any relationships with life expectancy and per capita income.

Two possible metrics I can think of are:

the ratio of total government spending to all spending (G / Y), and,
the value of government-owned assets divided by the value of all assets in the country's economy

What other metrics indicate how 'socialist' or 'capitalist' a country is?

For reference: Gapminder 2012


texts: What do supply-demand curves really look like?

texts:
In my basic high school economics course, we've always used supply-demand curves that are lines to simplify calculations. In real markets for real goods, what do the supply and demand curves look like? From a mathematical perspective, what would be the concavity, asymptotes, and intercepts?

I would imagine the quantity demanded would tend to zero as the price increased to infinity and the quantity demanded would grow very large as the price approached zero, but that is just what my intuition tells me.


texts: What will happen if the government not print money?

texts:
I already post this question in Money.SE, but I need to transfer the question in to this site because it's off-topic...

As I said in my previews post.

I start researching the reason why the government can't print more money to resolve its dept and I found this answer
"Why can't the government just print more money to resolve its debts?".

Its says the reason why the government can't just print more money to resolve its dept is the inflation... "The more money printed, the lower its value".

Then another question popup in my mind. What if the government not print money anymore? Does the value of money increase?


texts: I'm studying loanable funds from the book "Brief Principles of Macroeconomics, 6th ed". On page 307, the effects of an import quota are explained below. It said the net export rises, but NCO doesn't change. But NX = NCO, so I really confused. Can someone explain why it is and what I understand wrong?


texts: Ambiguity on a relation between inflation, interest rates, and central banks

texts:
When working on inflation, central banks, interest rates etc., I summarized the info in various sources as follows:

When there is not enough money in the economy system, the money in circulation becomes scarce.
This shortage of money increases the value of money.
However, central banks generally do not want money to be over-valued;
for a central bank, negative inflation is almost as dangerous as excessive inflation.
Therefore, the central bank controls interest rates in both ways to keep inflation close to its target rate.

What could be the logical interpretation of the phrase "in both ways" in the above paragraph?

a) Does it refer "(target inflation rate - epsilon, target inflation rate + epsilon)" (sor some plausible epsilon)?
b) Does it refer "(interest rate - epsilon, interest rate + epsilon)" (sor some plausible epsilon)?
c) Does it refer "under-valued money" and "over-valued money"?

Or any other interpratation that explains the phrase "in both ways" better than the above three meaning...

One of the sources reads as follows:

In the 21st century, most economists favor a low and steady rate of inflation. In most countries, central banks or other monetary authorities are tasked with keeping their interbank lending rates at low stable levels, and the target inflation rate of about 2% to 3%. Central banks target a low inflation rate because they believe that high inflation is economically costly because it would create uncertainty about differences in relative prices and about the inflation rate itself. A low positive inflation rate is targeted rather than a zero or negative one because the latter could cause or worsen recessions; low (as opposed to zero or negative) inflation reduces the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reduces the risk that a liquidity trap prevents monetary policy from stabilizing the economy.

I could not find exact source from where I deduced that this "in both ways" phrase.