texts:
Consider a $2*2$ exchange economy where individual $1$ has an endowment $(4,5)$ and individual 2 has an endowment $(6,5)$.
The utility functions of individuals are represented by $U({x}_i{y}_i)$=${x}_i{y}_i$ where $i$ refers to individual $1$ or $2$.
I know that the allocations which equate $MRS$ for both individuals would be the Pareto Optimal allocations. However, I seem to be very confused regarding the endowments. I cannot find an allocation that is Pareto Superior to the endowments. Also, the endowment (if it is, in fact, Pareto Optimal) does not satisfy the equality of $MRS$ condition.
Is it the case that equality of $MRS$ is not a necessary condition for pareto optimality? I can think of examples, such as Lexicographic Preferences which yield Pareto Efficient points without the condition of ${MRS}_i=$${MRS}_j$.
I think I'm missing out on something.
My concepts seem quite shaky so please bear with me.


texts:
Shimer (2005) says

  These [separation shocks] introduce an almost perfectly positive correlation between unemployment and vacancies, an event that essentially never been observed in the United States at business cycle frequency.

What is the data corresponding to that? Since his publication was from 2005, he must be referring to data on vacancies before the big recession. However, the standard data on job openings, JOLTS, is only available from 2005 onwards.


texts: Why salaries counted under Government expenditure in GDP

texts: In the expenditure approach of GDP calculation, why are government employee's salary counted under Government approach while for private firms, we don't count salaries. I am unable to understand if there is asymmetry and if yes, then why?


texts: How do calculate whether selling a product leads to profit?

texts:
To simplify things, imagine a company which sells two products, A, and B, and it has two types of revenues, two types of variable costs, and 1 type of fixed costs.

I can calculate margins by taking revenue A - variable cost A, and revenue B - variable cost B.

This tells me how much I make by selling each product.

However, then I have fixed costs, and I can't really "attribute" them to A and B.

My question is, how do I then decide which product is profitable to sell or not?

How do I "apply" fixed costs to my products?

Do I give use weights? For example, if 50 % of my sales are of product A, then it gets 50% of fixed costs attributed to it, and thus my profits from selling A is

revenue from A - variable costs from A - 50 % of fixed costs = profit from A

My interest lies in deciding whether I should scrap a product, or invest more in a product.


texts:
Can I use calculated data for regression analysis.

case 1: first run OLS $y = \alpha+\beta x$, and get $\hat\beta$, then calculate $z = h^\hat\beta$, at last run $m = \gamma + \mu z$.

case 2: follow the same settings as case 1, run $z = \zeta + \rho p$.

case 3: use matlab solve equation $k_i = \sum_j d_{ij} k_j$ for $k_i$, then run $w = \theta + \pi k$.

where $\alpha$,$\beta$,$\gamma$,$\mu$,$\zeta$,$\rho$,$\theta$,and $\pi$are coefficients, the other letters denote the variables.I have the variables y,x,h,m,p,$d_{ij}$,w. All the relationships between variables are from the models.

They are independent cases that I ran into.

I am going to estimate the coefficients $\mu$,$\rho$,and $\pi$.


texts: Linking top-down and bottom-up models for analyzing electricity price-based demand response: Expenditure constraint is violated?

texts:
I have a question about the contents of this paper*, which links a building energy model and a utility-maximization component. In it, the author tests several electricity prices using a Cobb-Douglas utility function. As I understand, the C-D function ($U=X^\alpha*Y^\beta$) stipulates that $X=\frac{\alpha}{\alpha+\beta}*\frac{Income}{P_x}$ at optimality. If Income and share parameters are fixed, that would mean $(X)(P_x)$ is always constant; if $P_x$ doubles, $X$ is halved, etc..

That is not what the paper finds in the linkage of the two components. P_electricity*ElectricityUse is not always constant. The expenditure equation implied by the C-D function is violated, but the paper applies an expenditure equation from the building energy model instead of it. They just maximize the utility function as the objective, subject to the budget constraint, and given the electricity use and expenditures from the building model, but do not factor in the implied relations.

Is this a violation that would nullify such linkage?

*Sorry if it is blocked behind a paywall, there isn't an alternate free copy.

Citation: Matar, W. "Households' response to changes in electricity pricing schemes: Bridging microeconomic and engineering principles." Energy Economics 75.


texts: If strict preferences map onto $\Bbb{N}$ what do weak preferences map onto?

texts:
Suppose I have $$\text{apples} \succ \text{pears} \succ \text{pineapples}$$

I can map this onto the natural numbers as follows

$$\text{apples}\mapsto 1$$
$$\text{pears}\mapsto 2$$
$$\text{pineapple}\mapsto 3$$

But for weak preferences we might have $$\text{apples} \sim \text{pears}$$
But this wouldn't map bijectively onto the natural numbers because then for example
$$\text{apples} \mapsto 2$$
$$\text{pears} \mapsto 2$$

My Question:

What do we map weak preferences on to? Or do we relax the assumption the map has to be bijective and allow it to be a surjective mapping onto $\Bbb{N}$?


texts: Total values of used/second-hand goods sold and donations?

texts:
Are there any good estimates of the total values of

used or second-hand good sales
donated goods

for the US or any other country?

I know these estimates are generally excluded from GDP, but are they tracked in any rigorous way by some government agency? I searched BEA and FRED, but have come up dry.


texts: Why do European Government Bonds 10Yr (or at least some of them) have such a high level of correlation?


texts: Framing Effect Risk-Aversion Risk-Pursuit

texts:
I am an economics' graduate seeking to study Law and I want to illustrate the importance of legal certainty. Penalties, Costs are negativelly framed.

I am trying to word.

200 dollars with 50% certainty or 100 dollars with absolute certainty both positevely and negatively.

The negative part is particularly difficult. I am giving nuances I should not.

I tried You find 200 dollars on the street( suppose you are unable to give them back) and after this you either have to pay 100 dollars or 200 with 50% certainty.

I do not know what nuances I give of but I always seem to fail to show people's inconsistency which I necessarily need to illustrate the importance of legal certainty.

How can I word the experiment question so as to best illustrate the Framing Effect?


texts: What's the point of adding security features to new bill designs?

texts:
What's the point of creating new bills with more security measures to prevent counterfeiting? (For example in the USA the new $100 bills have more security features).

If the old bills are still acceptable as currency, why would anyone even try to counterfeit new banknotes with all these security features?

Why don't people counterfeit bills from the 1800s (which are still legal tender - USA) and have NO protection from counterfeiting at all?


texts: Interpreting correlation between fixed effect and explanatory variable

texts:
I'm dealing with panel data and I chose to do a regression with cross-sectional fixed effects. Some of my explanatory variables (such as $debt_{it}$) do not show very much variation over the time dimension. In fact, the most interesting variation in $debt_{it}$ (but also in some other variables), is probably the cross-sectional variation (i.e. one country having a higher debt over the entire period under investigation) rather than the variation of debt over time within each country.

Therefore, I believe that demeaning the data by using cross-section fixed effects may elimate a lot of interesting information. The $H_{0}$ of redundant fixed effects is strongly rejected, and the Hausman test strongly rejects the consistency of the random effects estimator. Doing a pooled estimation, rather than F.E. estimation, more than doubles the estimated coefficient to debt.

In an attempt to 'retrieve' the valuable cross-sectional information, I plotted each country's fixed effect against each country's average level of debt over the time period. There was a significant correlation $(p<0,01)$ between the averaged debt and the fixed effect. Intuitively, it seems to me that I can conclude that (even though the coefficient to $debt_{it}$ is possibly insignificant, depending on the specification, I'm still working on this) a higher debt does result in higher interest rate spreads (which is the dependent variable).

These are my questions:

Is my intuition correct?
If it is not, which I assume to be the case since I have never come across a similar reasoning, where exactly does my reasoning fail? Can you provide some intuition or an accessible reference dealing with the issue?
Are there any estimators that are better equipped to use cross-sectional variation in the data than the within-estimator?


texts: When Does a Country's External Debt Become a Problem?

texts:
Here in the UK, the external debt is currently over 300% of GDP. To me this looks very worrying, using my basic financial logic, it seems like this debt will only go up (because of interest combined with the fact we don't have enough money to pay it off). The fact that it's over 3 times the value of the British economy worries me even more, like there's no end in sight...

I understand a country can remain in debt forever (so long as they keep paying their lenders) but how long can a country like the UK keep going like this? Public debt is 94% of GDP so that's just about manageable, but what happens if the external debt keeps rising? or the GDP begins to fall? Can the UK maintain a level of debt that is 300% of GDP forever? Basically, what would it take to turn this debt into a total financial collapse? I've heard of something similar happening in Argentina in the late 90s and they had a catastrophic recession, could that happen in the UK anytime soon?


texts: What is the intuition behind having a negative neutral real interest rate?


texts: Can the coming recession - or any recession - be avoided?

texts:
I keep reading about all these warning signs of a coming recession, and I have a very silly question: If we can see it coming, why can't we do something about it now, instead of after we are deep in it and fighting about stimulus packages like last time?

Now, I said it was a silly question, so I know the reason we don't is because of a lack of political will as well as a lack of political and economic consensus as to what that action should be. But I never hear anyone talking about what can be done to prevent a recession before it hits when all the signs tell you it is coming. Why not? Thanks.

(p.s.- Wow, you don't even have a tag for recession? What a bunch of optimists! LOL)


texts: Who is Jacob? And where did he say this?

texts:
In Karl Marx "Das Kapital", in Ch I.1 we find this quote

  "Jacob questions whether gold has ever been paid for at its full
  value."

Is Jacob Vanderlint? Where in his book “Money Answers all Things” is that claim about gold's value?


texts: Positive interaction term with one negative component?

texts:
Say I have an augmented growth regression, where my Y is GDP growth, and my Xs are the classical MRW variables, + international aid + corruption + the interaction term between the two.
Basically, I'm interested in seeing if lower corruption increases the effectiveness of international aid, which means I'd like to see a positive sign on my interaction term.
However, I also think I should see a negative sign on corruption, as the higher corruption, the lower should growth be.
Now, my questions:

Is this possible as I describe it? Can I see a negative component but a positive interaction term? In which case, how should I interpret it?
Or is there a reason the coefficient on corruption should be positive, and still indicate that higher "institutional quality" has a positive impact on growth by itself and also in interaction with aid?


texts: So when QE is used (or something similar that results in printing mone), where does the newly created money go? Does some entity get free money? Why is that allowed?


texts: Does the Federal Reserve buy and sell stocks?

texts: Can the Fed buy and sell stock in publicly traded companies? Is there evidence of this and, wouldn't this behavior drive the price as opposed to actual market forces?


texts: In a economy Arrow Debreau of pure exchange with two agents and two goods. With utility function of Leontief for agent B, where $U_b(x_b,y_b)=\min(x_b,y_b)$; and for agent A a simple Cobb-Douglas $U_a(x_a,y_a)=x_ay_a$ where the marginal rates of sustituion can´t be found because the concept of convergence can´t be applied. How do I solve this problem?


texts: Is there objective evidence that the US economy is "booming"?

texts: I realize that it's the political pundits that are saying it, but they never seem to provide evidence that the  economy is "booming".  The dictionary definition of "booming" is having a period of great prosperity or rapid economic growth.


texts: How to calculate the quantity of an incumbent that sets the profit of a challenger equal to 0?

texts:
I have the inverted market demand of $P=4Z-(q_1+q_2)$ and cost function of both firms is equal to $C=cq_i+f$ for $i=1,2$

So now, the existing firm wants to discourage a possible challenger to entry and sets an output that would make the profits of the challenger equal to 0.

My approach would be, to set up the profit function for the challenger:

Step 1: $(4Z-q_1-q_2)*q_2 - cq_2 = 0$ and then solve for $q_1$ in terms of $q_2$.

Step2: Then I can substitute $q_1$ in the profit function of firm 1 and take the derivative of the profit function with regard to $q_2$

Step3: The result of step 2 I would insert in step 1 in order to receive the quantity that firm one needs to produce in order to set the profit function of the challenger equal to zero.

Is this approach correct? I am a bit confused because of the strange algebra, but I could not come up with a different solution.


texts: Which one of these intepretations of belonging of a factor of production is correct in context of calculating "income of our citizens abroad"?

texts:
NFFI can be calculated as income of foreigners here MINUS income of our citizens/corporations abroad. As far as I understand, it's assumed that our citizens earn income by using OUR factors of production (factors of production:enterpreneurship, capital, labor, land) abroad. Here I'm interested NOT in NFFI itself, but in it's component, namely "income of our citizens/corporations abroad".

I wonder, "What to count as OUR factor of production?". There are two intepretations:

1.It's decided by location of the factor of production. So a factory that works on territory of our country is OUR factory, no matter who owns it. (With exception for enterpreneurship and labor, these are decided by citizenship of entrepreneurs and workers, thus our enterpreneurs and workers can be employed abroad.)

2.It's decided by ownership of given factor of production. So if our citizen/corporation owns a factory located in a foreign country, then it's OUR factor of production.


texts: Consumer Utility Maximization equivalent of economies of scope

texts:
Economies of scope captures the idea of having efficiency in variety. I've come across this idea only in producer theory to capture the idea that companies may benefit from their ability to reduce cost of production through horizontal or vertical integration.

Quoting Micheal Carter from his book Foundations of Mathematical Economics,

  The production technology displays economies of joint production or economies of scope at y  y1; y2; . . . ; ym
  if the total cost of producing all the outputs separately is greater than the cost of producing the outputs jointly

Is there a consumer theory equivalent of the idea of economies of scope?


texts: Solving for Feedback Effects / Amplification

texts:
Consider

$$f(x) + z = y \\
x = g(y)$$

I have a feedback effect in mind:

We Shock z by 1 percent
as a direct response, y increases
x increases with y through the second equation
Through f(x), y increases. Repeat 3.-4. until new equilibrium

I'm interested in solving the elasticity of $x,y$ w.r.t. $z$. I guess I need some sort of concavity requirement in $f \circ g$. How do I approach this?


texts: Get Annualized return from a time series of daily returns

texts:
I have a time series of data which has daily returns over 15-year time period.
I understand that you get multi-period simple return using the following formula.

$$1 + R_{t}(k) = \prod_{j=0}^{k-1}(1 + R_{t-j})$$

I want to know how to get annualized return from this data.

Thanks.


texts: How do you show welfare changes with limited entry versus perfect competition?

texts:
In Perloff's intermediate microeconomics book, he explains that producer surplus will increase with policies that limit entry. I get this intuitively - if we limit competition, producers will earn rents in the long run - but I am not following the graphical explanation. The text reads as follows:
"Although government policies may cause either the supply curve or the demand curve to shift, we concentrate on policies that limit supply because they are used frequently and have clear-cut effects. If a government policy causes the supply curve to shift to the left, consumers make fewer purchases at a higher price and welfare falls. For example, if the supply curve in Figure 9.3 shifts to the left so that it hits the demand curve at e2, then output falls from Q1 to Q2,
the price rises from p1 to p2, and the drop in welfare is −C − E. The only “trick” in this analysis is that we use the original supply curve to evaluate the effects on producer surplus and welfare."
Can someone explain to me the intuition behind this "trick"? There is nothing provided in the text. I don't understand why we wouldn't use the "new" supply curve to calculate welfare.
To add in for reference, in a previous version of the textbook Perloff uses the following graph as an example. This graph makes sense to me. The new one does not given what is written unless it assumes a vertical supply curve.


texts: Is Botswana’s strong mining industry sufficient to consider the country as an industrialized economy?


texts: Game Theory: Continuity in equilibrium profits?

texts:
Consider 2 agents $A_i$. $A1$ moves before agent $A2$. Each of their utility functions is continuous in each agents' decision $0<s_i\in \mathbb{R}$ and a parameter $x$. Additionally, each agent's utility function has a unique interior maximum in its own decision $s_i$.
The agents' have lexicographic prefeences (primarily needed so that the other agents can anticipate strategies): $A_1$'s maximize its own utility, if two or more strategies maximize its own strategy it chooses among these the one that is best for $A_2$. $A_2$'s maximizes its own utility, if two or more strategies maximize its own strategy it chooses among these the one that is best for $A_1$.
Statement one: This game has at least one SPNE, but in general multiple. In case of multiple SPNE these will have the same utility profiles, that is, yield each agent the same utility.
Statement two: The agent's utility profiles are continuous in $x$
(Remember, each of their utilities was continuous in $x$.) My reasoning for statement two is that an incremental change in x implies that the ne NE will be very close to one of the NE before the change in $x$. And as these NE had the same utility profile, the change in $x$ will only have an incremental effect on the utility profiles.
Do you agree with the two statements and do you perhaps have a more solid argumentation (partcularly for the second).


texts: Why don't economists do regression diagnostics?

texts: There is a lot of talk about regression diagnostics in tutorials on the web, but then in economics research papers nobody actually reports residual plots, collinearity checks etc. Is there any reason for this?


texts: Why isn't high inflation along with robust welfare a 'good' system?

texts:
High inflation, by definition, means that the demand for goods and services is higher compared to the demand for currency. In other words, people are more willing to give up currency for goods and services.
Therefore, high inflation brings opportunities for able people to provide goods and services and earn their livelihoods.
The downside of course is that, those who aren't able to produce goods and services may suffer, if their savings are insufficient. However, they can be covered by a robust and guaranteed welfare program.
Therefore, it seems to me that issuing large amounts of currency and assuring welfare with it makes for a fairer distribution of economic resources and opportunities.
Why, then, is high inflation considered undesirable?
[I have learnt from this forum and elsewhere that a small positive inflation is considered desirable. My question is why doesn't the same apply to high inflation.]


texts: If an item is rarer than others, is it that much more valuable?

texts:
Say I am selling a pack of trading cards, and there are 5 cards inside. Four of these cards are basic cards, but the last card has a 1:10 chance of being a special insert card.

Does the fact that the special insert has a 1:10 chance of appearing mean that it is ten times as valuable as a base card?

I understand that value is almost entirely subjective, so I suppose this is a philosophical question more than anything else, but I'm also not really an economist so I don't know if there are any axioms around this.


texts:
What is the difference between (market value of equity/book value of equity) ratio and (market value of assets/book value of assets) ratio?

In my opinion both measure fairly the same? Is this correct? The first (MV/BV equity) is commonly used as Tobin's Q. Can I use (MV/BV assets) for the same?

Thanks for your help!


texts: How do personal finance banking apps make money?

texts:
There are a bunch of apps and start ups, like Qapital and Varo that helps you save money. Some of them has monthly fees, but not all of them. How else could a company like that make any profit, if their only service is saving accounts and using their debit card?
Is there a way they could earn money by using their debit card? Or would they invest the money on the saving accounts into safe assets, so they could make more profit?


texts: how to raise utility of an individual having min utility function

texts: I was doing an exercise of utility and got confused with a min utility function. endowments can redistribute among individuals. How am i supposed to increase his utility. Can i simply reduce the endowment of this min utility person(or give him extra)?


texts: Why is collective bargaining by a group of employees not the same thing as price-fixing?

texts:
Employees sell their labor for wages. If a critical mass of employees get together and demand higher wages, how is this not the same thing as a critical mass of merchants illegally fixing the price of some commodity?

Can't a strong union be considered to have an illegal monopoly on labor?


texts: Consumer based asset pricing model, differentiation problem

texts:
Just a small question about the differentiation technique used in the consumer based asset pricing model.

I need to maximize the following equation:
$U(c_t) + E_t[\beta \cdot u(c_{t+1})]$

$$\begin{align} \text{such that} \qquad c_t & = e_t - p_t \xi \\
c_{t+1} & = e_{t + 1} + x_{t + 1} \xi \end{align}$$

 where $t$ is a time subscript, and $S$ stand for Xi, the greek letter. I'm new to this site, so haven't figured out all the neat tools for symbols.

I can use substitution or a Lagrange formula, I know how both work. What puzzles me though is part of the solution. From what I know about partial differentiation, the derivative of the first part $u(c_t)$ with respect to $c_t$ (when using the lagrange method), or with respect to $\xi$ if you use substitution, becomes $u$, but my book (and several online sources) give $u'(c_t)$, and so the solution to the optimization problem becomes $u'(c_t)p_t = E_t[\beta \cdot u'(c_{t+1})]$

I'm sure I'm missing a very simple differentiation rule, but I can't find it anywhere.

Thanks for your attention:)

Best regards,

Anne


texts: Why don't we have many-to-many lending yet?

texts:
Trying to research this for some time, but can't really find anything relevant.

As it currently stands borrowing can be one-to-one: 1 customer borrows money from 1 bank. And can be one-to-many: 1 company or country borrows money from many lenders by issuing bonds. The most popular bonds (government bonds) can be traded even on exchanges.

However there is no such thing as many-to-many lending. Why? Many to many lending would mean there are multiple borrowers and multiple lenders on both sides of the same asset where the borrower's payments are redistributed to the lenders.

In a possible implementation there are fixed rate annuity bonds with various maturity dates.

To borrow: you choose which bond you want to issue from the list of bonds designated for many-to-many lending. Then the broker issues those bonds and sells them on the market for market price to raise the money for you. You have to pay the coupons to the lender + some risk premium (based on the credit rating of the borrower) to the broker which goes into a fund to be able to pay to the lenders in case of a default. The risk premium can be an ongoing payment or can be part of the broker's initial quote. The borrower can buy back the bonds from the market if they wish to pay back early.
To lend: you buy these bonds just any regular bond.

This is not meant to be a replacement of the existing debt market, just an interesting addition.

Interesting properties of this system I can foresee:

That borrowers don't need to issue a new bond every time they borrow, instead they can use a common asset that are probably actively traded on an exchange so they have access to market prices thus can find the best bargain easily. Making the market more liquid than the usual bond market.
Properly chosen risk premiums can minimize the risk of default.
Balancing forces: increasing interest rates reduce bond prices and encourage both borrowers and lenders to buy bonds, driving prices up and decreasing interest rates and vice versa.
Borrowers benefit from increasing interest rates: it becomes cheaper to buy the bonds back from the market for early exit. In a regular fixed bank loan the opposite is true.

So why don't we have something like this yet? I don't see any fatal flaws yet that could make such system impossible.


texts:
Suppose we have utility:

$$U(x,y)=x^{0.5}y^{0.5}$$

Then Marshallian Demand for good $x$ is:

$$x(p_{x},p_{y},I)=\frac{0.5I}{p_{x}}$$

And Hicksian Demand for good $x$ is:

$$x^{c}(p_{x},p_{y},U)=p_{x}^{-0.5}p_{y}^{0.5}U$$

If $p_{x}=1$, $p_{y}=4$, $I=8$ and $U=2$:

Marshallian Demand for $x$ is 4 and Hicksian Demand for $x$ is 4.

Supposing that the price of good $x$ rises to $p_{x}=4$, how can the Slutsky equation show us the change due to substitution effect and income effect?

Substitution effect: $\frac{\partial x^c}{\partial p_{x}}=-0.25p_{x}^{-2}I$ according to the Slutsky equation. If we plug in $p_{x}=4$, the result is -0.125. How is that meaningful in any way? The Hicksian Demand should drop from 4 to 2 after this price increase but I don't see how the Slutsky equation shows us that.


texts: What economic factors should be considered in attracting suitable staff and determining pay for temporary project work?

texts:
Getting qualified workforce for temporary projects can be difficult. If found from within the organisation, they may have to abstain from their regular work, and this may create additional complications to their worklife. Given that the right people may be difficult to find, they may have to be paid higher than if the same post would be a year-round job (if the quality of work is the same).

Many factors might need to be taken into account by an employer seeking staff for such projects.  What economic factors are relevant here?


texts: Does everyone prosper through development projects?

texts: Why don't all investors focus their intentions on development projects in less developed countries? Wouldn't this benefit all parties since the recipient country would be more developed and the investor would make a profit? In other words can it be said that development projects are the type of investments where no one is placed at a disadvantage and everybody prospers? ( p.s. please don't criticize if you find this is a stupid question or I sound redundant, I'm a 17 year old economics student excited to learn as much as I can)


texts: Interest rates, inflation and liquidity effect

texts:
I am currently reading Alvarez, Lucas, Weber (2001) where the authors argue that changes in money supply is more important for affecting inflation, than changes in the interest rate. However, I am confused about this part:

  To be useful in thinking about the role of interest rates and open market operations
  in the control of inflation, a model of monetary equilibrium needs to deal with
  the fact that most coherent monetary theories do not have anything like a downward
  sloping demand for nominal bonds: With a complete set of financial markets, it is
  just not true that when the government buys bonds, the price of bonds increases. We
  may believe that such a “liquidity effect” occurs in reality (though it is hard to see
  it in the data) and may regard it as a deficiency that so much of monetary theory
  ignores it, but the fact remains that one cannot take take a Sidrauski (1967), Brock
  (1974), or Lucas and Stokey (1987) model off the shelf and use it to think about
  increases in money reducing interest rates.

How come when the government purchases bonds, the price of said bond doesn't increase? The authors argue that with an unsegmented market, this does will not happen (i.e there will be no liquidity effect). However, when markets are segmented there is a liquidity effect. The market is segmented in to two groups, traders (have access to the bond market and goods market) and non-traders (only trade in the goods market).

They do develop a model and I more or less understand the mathematics behind it. They show the phenomenon mentioned above using their model. However, I don't quite understand the intuition behind it. Why is there no liquidity effect when markets are unsegmented? Why don't bond prices rise with government purchases?


texts: Labour markets and supply-side policies: too much stress put on the WS push factors?

texts:
In reading several macro textbooks, it seems that most of the supply-side policies tend to be focused on the labour supply side (wage setting curve), instead on the firm/labour demand side(price setting curve).

In most textbooks, this whole section is devoted to training programmes, wage accords, income policies, the degree of 'coordination' in unions of the economy, etc.

Almost very few pages,or paragraphs, are dedicated to price-push factors, for the exception of the usual chapter on the oil shocks in the late 70's, which can be seen as labour productivity shock. Almost nothing is said about improving competition, and whatever else can be considered as price-push factor.

Why is that? I maybe wrong, though.

Some may say that there's no too much stress, since the relevant policies are already studied in the field of Industrial Organization. However, my reply to this, is that there's also a field called Labour Economics where many of the effects of the policies for the WS curve are studied, and yet macro textbooks still cover them. Hence, there's clearly an unbalanced exposition in most macro textbooks...


texts: Oaxaca decomposition - Interpretation Interaction

texts:
I am running a Oaxaca decomposition on trends in paid work (similar to this paper)
The estimates are expressed in minutes.

The total change shows an increase in about 30 minutes between Period 0 and Period 1.
I have some difficulties to understand what the Interaction means here. So the Endowments represent the observed characteristics of my model and the Coefficients the unobserved.

What about the Interaction? How should interpret the fact that it is negative ?

                     Decomposition
Period 0                   174.66
Period 1                   204.15
Total Change               29.5
.
Endowments                  22.78
Coefficients                50.38
Interaction                -43.66


texts: What are some examples of goods that entrepreneurship-intense?

texts:
Entrepreneurship is considered to be one of factors of production (the other factors of production are capital, labor and land).
According to Heckscher–Ohlin model, a country that has an abundant supply of a factor of production will have a comparative advantage in goods whose production is intensive in that factor.
I tried to imagine examples of countries with different comparative advantage for each factor:
1.Country A has lots of capital, including human capital. It exports state-of-art semiconductors. It also has lots of programmers, system adminstrators, "white hats" and other IT specialists who export their services by working remotely.
2.Country B has lots of land. It uses said land for farming, consequently exporting products of its farming.
3.Country C has lots of labor, although its workers are poorly educated. People work in sweatshops. It exports clothing.
4.Country D has lots of entrepreneurship. Or in other words, it has lots of talanted and skilled business people. Now I have a problem with this one, I don't know what kind of goods country D could have exported. Can you help?


texts: Clearing price in a double auction market

texts:
I have been reading a paper on energy markets and I have stumbled upon double markets and clearing prices, which got me quite confused (bare in mind, I am relatively new to this topic). Quote from the work (Chapter 3, C):

  The order book market design is implemented via a double auction market with discrete market closing times that results in a single clearing price in every trading period. .... The lowest bid price that can still be served given the aggregated supply determines the market clearing price.

The way I understand this model is that there will be only 1 price, which every buyer is going to purchase the product for. For example:

Buyers:

Buyer 1: bid price = 30 cent
Buyer 2: bid price = 25 cent
Buyer 3: bid price = 20 cent
Buyer 4: bid price = 15 cent

And the ask prices of the sellers per item:

Sellers:

Seller 1: ask price = 25 cent
Seller 2: ask price = 20 cent

From what I understand is, that there would be just one clearing price and Buyers 1 and 2 will both purchase an item from Seller 1 and 2 for 20 cent, instead of 30 and 25 cent. Have I understood the concept of the double auction correctly, or will Buyers 1 and 2 purchase their items for 30 and 25 cent from the respective sellers?


texts: Could massive derivatives exposures at banks lead to disaster?

texts:
A while back I posted this question about the possible risks of banks having massive derivatives exposures.

The most upvoted answer (by BKay) said that there was little risk because banks mainly hold pairs of opposite bets. So for example it may simultaneously hold bets with two companies (A and B) where, if the price of oil goes up sharply then it has to pay out to A, but B has to pay the bank.

So this is all fine so long as both A and B are solvent after the oil price rise. Presumably if B goes bust then the bank is still liable to A.

So now my question is - couldn't there be some scenario where there is a sudden economic shock which simultaneously means that the banks will have to do a lot of paying out of bets but where the companies that are losing bets, and owe the banks money, go bust. With such enormous exposures it wouldn't take much of a fraction of the bet-losing companies going bust to cause an enormous loss for the banks.


texts: Binary relation on the set $X = \{v, w, x, y , z\}$ that is asymmetric and transitive but not negatively transitive

texts:
So I am trying to find a binary relation on the set $X = \{v, w, x, y, z\}$ that is asymmetric and transitive but not negatively transitive, and is quite tricky.
Will $R = (v, w)$ be asymmetric and transitive but not negatively transitive?


texts:
If I have observations of $y_{i}$ and $x_{i}$ which are i.i.d. I also have OLS assumptions such as $E(\epsilon_{i} \mid X_{i})= 0$, my qustion is:
If I project $y_{i}$ onto a constant $\mu$, that is, we have model
$y_{i} = \mu + \epsilon_{i}$. Does finding the OLS estimator $\hat\mu$ has anything to do with $x_{i}$? Because in my opinions, $x_{i}$ never emerges.
Thanks~


texts: What are some exceptional movies / documentaries on macroeconomics?

texts: I would like to know a few movies / documentaries that are based on macroeconomics


texts: What does it mean if country X has a higher GDP at Purchasing Power Parity (PPP) than country Y?

texts:
I understand the implications of having a higher/lower GDP at market exchange rates. I also understand what PPP measures.

But, what does a difference in GDP, at PPP, indicate in terms of differences in levels?


texts: How to find mixed optimal strategies in this zero-sum game?

texts:
I'm trying to solve this problem from last year final exam in game theory:

Consider the zero-sum game $G=(X, Y, g)$ where $X=Y=[0,1]$, and $$\forall (x,y) \in X \times Y: g(x, y)=\max \{x(1-2 y), y(1-2 x)\}$$
Find a mixed optimal strategy for each player. (Hint: one can consider mixed
strategies of player $1$ which plays $x=0$ with some probability and $x=1$ with the remaining probability).

My attempt:
Let $\sigma$ be a mixed optimal strategy in which player $1$ play $x=0$ with probability $p$ and $x=1$ with probability $1-p$. A mixed optimal strategy $\tau$ of player $2$ is a probability measure on $[0,1]$.

Then I'm stuck to proceed. Could you please help me finish this exercise? Thank you so much!


texts: Log deviation from steady state - understanding a journal paper

texts:
I hope a question like this is fair game on this website!
I'm doing some research for my thesis, and have come across what seems to be a pretty simple model - two countries, A (representing the USA) and B (representing China), with the typical household optimization/BC, firm profit maximization, and goods clearing. There is a single good produced by each country, and consumers in each country can choose to consume either or both of the goods.
The paper can be found here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1008734
However, this paper is sorely lacking in any sort of derivations or explanations, and there's one in particular that I've been trying to figure out all day that I just can't:

Using the assumptions made so far, and the definition of the price index, we may write the log deviation in $\frac{P_{BBT}}{P_{Bt}}$, the ratio of country B’s good price to the country B CPI, as $-(1-\alpha)\tau_t$.

(this is on page 8 of the PDF, by the way)
Previously (top of page 8), they have defined $\tau_t$ to be the log deviation of the country B terms of trade; the terms of trade is defined as $\frac{S_{t}P_{AAt}}{P_{BBt}}$ (where $S_{t}$ is the exchange rate) and the whole fraction is assumed to equal to 1 initially.
I'm guessing we can use this to assume the steady state log linearized terms of trade is 0 (since $\ln(1) = 0$), so the log deviation of the above fraction is just $\tau_t = \hat{s}_t + \hat{p}_{AAt} - \hat{p}_{BBt}$
Then, the price index is defined as
$$
P_i = [\alpha P_{ii}^{1-\theta} + (1-\alpha)P_{ij}^{1-\theta}]^{\frac{1}{1-\theta}}
$$
but I can't figure out how to incorporate that into the log linearization calculation of $\frac{P_{BBT}}{P_{Bt}}$ to get $-(1-\alpha)\tau_t$. On page 7 there are some equilibrium conditions, which he could be using to arrive at this equality, but based on the wording I don't think that's the case.
I've tagged (and titled) this question as a log-linearization question, but it might be the case that I'm not understanding some aspect of the paper. Thanks a ton to anyone who takes a look at this!


texts: How does a country increases or decreases it currency value (exchange rate) against other nations currency?

texts: I want to know how a country, Mexico for instance, keeps the exchange rate higher or lower against other nations currency, USD, EUR, JPY. How does the value of a nation currency is valued against other counties?


texts: What is causing the difference between USA financial indexes and perceived economy?

texts:
While the world is facing economic problems since the spread of Covid-19 in Feb 2020, the main indexes in the world (S&P500 and NASDAQ100) reached and exceeded twice their maximum levels. I understand that:

Tech/Online companies have seen their revenue increase as a consequence of lockdowns
The pandemic is temporary and offer/demand will restore "as soon as" the pandemic is over
The Fed has purchased securities to protect the markets from excessive sell out

However, why is there such a big difference between financial markets and daily people life for the past 13 months?
I'm only 25 years old and I partially remember the MBS crisis in 2008, but I feel that market prices used to track the expansion/contraction of the economy. I have read articles claiming that economy and finance are two different things, still I am not convinced that there exists no correlation between the two.
If the Fed is protecting prices, is that a bubble waiting to explode? If the Fed is slow enough to sell to prevent a bubble, have they found a way to avoid any financial crisis in the future?


texts: Import/export by sector/country data source

texts:
I am looking for import/exports data by sector and country, with partner countries. The goal is to get a picture of overall imports/exports to/from a specific country with (possibly) all of its partners, for any particular sector/year.

So for example: For 2017, oil imports and exports for China with Russia, Angola, Saudi Arabia, etc.


texts: Tacit Collusion : infinitely repeated Cournot duopoly

texts:
This exercise is from Steve Tadelis An Introduction To Game Theory.

(10.8) Tacit Collusion: Two firms, which have zero marginal cost and no fixed cost,
produce some good, each producing $q_i ≥ 0, i ∈ {1, 2}$. The demand for this
good is given by $p = 200 − Q$, where $Q = q1 + q2$.

a) First consider the case of Cournot competition, in which each form
chooses $q_i$ and this game is infinitely repeated with a discount factor
$δ < 1$. Solve for the static stage-game Cournot-Nash equilibrium.

b) For which values of $δ$ can you support the firms’ equally splitting
monopoly profits in each period as a subgame-perfect equilibrium that
uses grim-trigger strategies (i.e., after one deviates from the proposed
split, they resort to the static Cournot-Nash equilibrium thereafter)?
(Note: Be careful in defining the strategies of the firms!)

I thought that (a) is easy enough to not include it as a separate question, but I would still like to check if my working is correct:

a) Firm $i\in \{0,1\}$ maximizes profits when:

$$(200-q_i-q_j)q_i$$ reaches maximum. So,

$$\frac{\partial (200-q_i-q_j)q_i}{\partial q_i}=0 \Leftrightarrow \frac{200-q_j}{2}=0$$.

Nash equilibrium is reached when $q_i=\frac{200-q_j}{2} \Leftrightarrow q_i=200/3$

b)

If they split into equal qunatities, then they will maximize profits when both quantities will equal $50$.

So, by a formula in my textbook, to see for what values of $\delta$ the firms will not deviate from the strategies, we calculate:

And with some algebra it's equivalent to :

If a firm i had to unilaterally deviate from the collusive agreement, it would
choose to produce an output $q^d_i$ that maximizes its profit, given that firm $j$ produces $q^c_j=50$. That is

$$q^d_i=\text{ arg max }_{q_i} (200-50-q_i)q_i=(150-q_i)q_i$$

So, $q_i^d=75$ Hence $v^d_i=(200-75-50)75=5625$

For the current payoff if defect $v^*_i=\left(200-2\left(\frac{200}{3}\right)\right)(200/3)=4444$

The collusive outcome, obtained when firms form a cartel that maximizes
joint profit, is such that $Q^c=\text{ arg max }_QP(Q)Q$ and $ q^c_i=\frac{1}{2}Q^c.$ Here, $Q^c=100$ so $q_1^c=q_2^c=50$.

So, $v^c_i=(200-100)50=5000$

So, value for $\delta$ is :

$$\delta\geq \frac{5625-5000}{5625-4444}=625/1181=0.529$$

So, for $\delta\in[0.529,1)$, the firms will not deviate.


texts: While calcluating GNP, the overall income of a citizen working abroad is considered or only his/her remittances?

texts: Suppose a citizen of Country A is working in Country B with income X USD, and he sends Y USD as remittance to A, what is considered while calculating GNP? X or Y? (X is inclusive of Y)


texts: How do I measure effects over years in panel data with individuals?

texts:
I'm working with a longitudinal panel dataset that surveys the same few thousand individuals biennially and I have six years of this data. My dependent variable would be how much individuals spend on X, and there are a list of about 15 independent variables such as age, income, etc that could affect whether and how much individuals spend on X.

I could run regressions for each panel to see whether people who have higher incomes spend more on X, for example, but I want to be able to measure whether the spending patterns of individuals on X changes as their circumstances change (do individuals who get a raise between surveys spend more on X? do individuals spend more on X as they get older?) instead of just whether richer individuals spend more on X. I have no idea how to go about this, though.

What I have so far is that I could difference the data between years so I have (for example) IncomeChange and SpendingOnX for every year, and so on and combine everything as a set of entries, but that doesn't measure individual behavior changes as much as just the effect of changes. Such as:

  ..... | IncomeChange & all indep vars | dSpendingOnX

  ...1 | [2007 to 2005 for individual A].. | [how much more A spent in 2007]

  ...2 | [2009 to 2007 for individual A].. | [how much more A spent in 2009]

  ...3 | [2007 to 2005 for individual B].. | [how much more B spent in 2007]

  ...4 | [2009 to 2007 for individual B].. | [how much more B spent in 2009]

  ...5 | [2011 to 2009 for individual A].. | [how much more A spent in 2011]

And so on, down to entry 25,000 (for the same 5000 people surveyed each of the years, for 5 years since differencing wouldn't be available for the first year of the survey).

That would let me see how changes in, say, income, affect changes in spending in general, but I feel like there would be methods that would be a lot more insightful and I just haven't been able to figure them out. Would I have to run a separate regression for each year-combo (one for 2007 with differences in variables since 2005, one for 2009 with differences in variables since 2007, and so on?)

For example, with this level of information:

  UserID | dIncome05to07 | dIncome07to09 | dIncome09to11 | dSpending05to07 | dSpending07to09 | dSpending09to11

  A | +1000 | -3000 | +250 | +100 | -200 | +100

  B | +2000 | -5000 | +700 | +400 | -100 | +100

  ...all the way down to the 5000th individual.

How would I be able to find results in the format of something like: "in general, as individuals see a change in income of +1000 the amount they spend on X is expected to change by +117.42"? Or is that not possible with this set of longitudinal panel data? With 5000 individuals, it's not like I could add, say, a dummy for each individual or something (to my knowledge) or subset them into subgroups.


texts: Why is buying a put option a cash outflow, but shorting inflow?

texts:
What advantage are there to shorting the stock as opposed to buying put option : finance

  Buying a put is a cash outflow, while shorting is an inflow. One advantage is that you can reinvest this inflow into another position.

In both cases  you're hoping to profit, and have money flow INTO your account, from a stock price's decrease.


texts: References on the sustainability of the public debt

texts:
I am an student who does some research on sustainability of public debt.

Which papers are essential to understand what determines the sustainable debt threshold, and the sustainable level of public debt?


texts: What does "sample period" in this case mean?

texts:
Dasgupta,2019 documented that

the treated group comprises all firms that are headquartered in
countries that have passed a leniency law by year t. The control group
comprises firms in countries that never adopted a leniency law in our
sample period and firms headquartered in countries that adopted a
leniency law at some later point of time.

I am wondering "sample period" here is the whole period of the study or the window [-2;+5] around the law implementation of a specific country. For example, Korea passed the law in 1997, so "sample period" means "1990-2012"(the whole dataset Dasgupta,2019 consider in their analysis) or "1995-2002"?


texts: Which currency is preferred when countries with different currencies purchase imports/sell exports?

texts:
For example, when a company in the United States sells goods to a company or distributor in China, does the U.S. company accept payment in yuan (which it then exchanges for dollars on the currency market) or dollars?

Likewise, when a Chinese company sells goods to an American company, does the Chinese company accept only yuan or will dollars suffice (even if they have to be sold to purchase yuan)?

Are some currencies (for example, the dollar, British pound, or euro) preferred in lieu of weaker currencies when two parties are exporting/importing on the international market?


texts: Is second price auction better than first price sealed bid auction? Why?

texts:
As I understand and have read the advantage of the 2nd price auction is that it encourages bidder to bid for 'true value', which I think can also be done with the 1st price sealed bid auction. I might be wrong, but I want to understand which one is better and why.

If the explanation can be made in terms of auction process for online ads (google use 2nd PA for ads), that'll be wonderful.


texts: How can I calculate with the average of the consumption in an RBC framework?

texts:
In the following open-economy RBC model consumption level ($C_t$) is not the most important for the representative households, but the difference of the consumption level and the earlier level of the average consumption ($\overline{C_{t-1}}$):
$$H_t=C_t-b \overline{C_{t-1}}$$
$$0<b<1$$

The consumer's utility function:
$$E_0 \sum\limits_{t=1}^{\infty}\beta^{t-1}\left( \frac{H_t^{1-\sigma}}{1-\sigma}+\frac{L_t^{1+\eta}}{1+\eta}\right)$$

After solving the Utility Maximization Problem, deriving the First Order Conditions, here's the Euler-equation:
$$\beta E_t \left(\frac{C_{t+1}-b \overline{C_{t}}}{C_t-b \overline{C_{t-1}}}\right)^{-\sigma}(1+r_t)=1$$

Question: I've got no idea what I should do with the average of the consumption ($\overline{C_{t}}$) term. How can I calculate with this? I need to find the steady state, and do the log-linearization, but I don't understand the substance of this variable.


texts:
Consider a consumer who can consume either A or B, with the quantities being denoted by $a$ and $b$ respectively. If the utility function of the consumer is given by $$-[(10-a)^2+(10-b)^2]$$(suppose prices of both goods are equal to $1$), then solve for optimal consumption of the consumer when his income is $40$.

My approach: I have the problem: $$max(-[(10-a)^2+(10-b)^2])$$ $$s.t.\ a+b \le 40,\ a\ge 0,\  b\ge 0.$$ Looking at the objective function, we see that it's maximum value is $0$ when $a=b=10$.

Am I right here?


texts: What exactly is L in a Cobb-Douglas production function?

texts:
Cobb-Douglas is $Y = AK^{1-\alpha}L^{\alpha}$.
What exactly is $L$ in Cobb-Douglas? Is $L$ the number of workers available in a single year? Working hours?


texts: What is the difference between the world economy and world trade? I have read in one book saying "US share in the world economy is 28% and in the world trade is 15%" (2008 edition though). Please explain. Thanks


texts: Using variance-ratios as moment conditions in a GMM estimation

texts:
I have a few time-series, say ${X, Y, Z}$ at a given frequency, say, yearly.

Now I compute the yearly growth rates (ie log-differences):

$dx = log(X_{t}/X_{t-1}), dy = ..., dz = ...$

and I compute the variances $vx = var(dx), vy = var(dy), vz = var(dz)$.

Assume I re-do the same at various frequencies $n = 2, 3, 4, 5,...$:

$(d_n)x =log(X_{t}/X_{t-n})$

and I compute the variances of those $n$-years growth rates.

Then I compute the variance-ratios: $vr(n) = var((d_n)x) / (n var(dx) )$.

Assume that I have a model that provides these variance ratios: $vr(n, theta)$ for some parameter vector $\theta$.

How do I perform a GMM estimation of $\theta$?

I ask this because $dx$ and $(d_n)x$ are different time-series even if the latter is a transformation of the former.

Any advice?


texts:
Why does the Fed feel the need to reduce its balance sheet?

What is the problem with the Fed having a large balance sheet long term? What would happen if the value on the Fed's balance sheet collapsed, say in a bond crash?


texts: Why is the measured year 2018 inflation rate low despite rounds of quantitative easing?

texts: Is it correct to state year 2018 inflation rate of 2.2% is very low? Is it correct to state that even though the commodity prices have not increased, the increased money supply coming from the numerous rounds of quantitative easing found its way into the stock market and the bull market in the past few years were fueled largely by this influx of money supplies rather than the increased productivity of the economy?


texts: Dornbush model - relationship between i and S

texts:
In the Dornbush model, when we separate short and long run equilibrium. This is what I apparently have understood:

SR1: an increase in Money Supply ($M_s$) leads to a fall in domestic interest rates ($i$) since price are considered sticky in the short-run. Indeed, an excess in money supply will result in a rise in domestic bond demand, hence in bond prices i.e. an fall in interest rates. This is the same reasoning used in ISLM model, where money and bonds are perfect substitutes.
SR2: the fall in domestic interest rates means international investors (e.g. from U.S.) would require an appreciation of the domestic currency, so that they would exchange a reduced amount of £ received in interests for more \$ than before, so that at the very ending the still receive the same amount of \$ they received before. Therefore they expect the exchange rate $S_{£/\$}=\frac{£}{\$}$ to fall ($S_{\$/£}=\frac{\$}{£}$ to rise) in the near future.

However my textbook says:

  As the domestic interest rates would be lower than the world interest rate, this means that speculators would require an expected appreciation of the domestic currency to compensate. For this reasons the domestic currency jump depreciates at time $t_1$ from $S_1$ to $S_2$ overshooting its long run equilibrium $\bar{S}$.

Where am I wrong? Why $S_{£/\$}=\frac{£}{\$}$ is rising?
Why also in the long run $\bar{S}_{£/\$}$ is rising?


texts: How to find the market equilibrium by surplus maximisation when there is a consumer subside?

texts:
Let's assume a market with linear demand and supply functions, let's say $Q_d = 20 - 4p$ and $Q_s = -4 +8p$ respectively.

We can easily find the market equilibrium by either setting $Q_d = Q_s$ (or $P_d = P_d$ in the inverse demand and supply functions) or by maximising the total surplus, as done in the following screenshot:

We can now add a subside to the consumers, let's say 2 monetary unit/quantity unit, and the result is to shift up the demand curve, so that the new equilibrium can be easily obtained setting for example the prices equal in the new apparent demand curve $Q_dsub = 28-4p$ and the supply curve, and we find equilibrium quantity with subside $Q^{*sub} = 52/3$, eq. price with subside for the producers $P^{*sub}_{S} = 8/3$ and eq. price for the consumers with subsides $P^{*sub}_{D} = 2/3$

The problem is that if I try to obtain that results by maximisation of the total surplus as before, I obtain:

$$TotalSurplus = - \frac{3}{16}Q^2+\frac{9}{2}Q + P^{*sub}_{S} * Q^{*sub} - P^{*sub}_{D} * Q^{*sub}$$

When I account for $P^{*sub}_{S} = P^{*sub}_{D} + 2$, I obtain:

$$TotalSurplus = - \frac{3}{16}Q^2+\frac{9}{2}Q  + 2 * Q^{*sub}$$

And here I don't know how to continue, as the equilibrium point doesn't write off any more.


texts: How could having more US dollars solidified the 1991 Argentine peg to the US dollar?

texts:
In an economics textbook, Modern Principles of Economics, the authors, Tyler Cowen and Alex Tabarrok, write that "The Argentine government did not have enough U.S. dollars to keep up the value of the peg,"(referring to the 1991 peg) almost suggesting that had they had enough US dollars that the peg would be kept. How does having more US dollars keep the value of the peso up?

If the exchange rate of the Peso was dropping due to decreased demand(people were converting pesos to dollars), shouldn't the government buy a non-USD currency with pesos to reduce the supply and push the price up, keeping the peg intact. How does having "enough" US dollars solve that problem?

Clearly, looking at this from just one perspective, the exchange rate, is limiting in itself, but the sentence seems to suggests it was a possibility. I would appreciate it if anyone could explain the authors rationale.


texts: What does Eugene Fama mean "variance of price changes over multiple days should be less than the multiple of the variance over a day"?

texts:
I transcribed A Symposium with 2013 American Nobel Laureates at Embassy of Sweden, Washington - YouTube starting at 54:45. Martin Karplus (Chemistry)  challenges Eugene Fama.

Look at how the stock market fluctuates over the last six months. It keeps going up and down like that [Karplus swings his left hand up and down.] Obviously these are short-term fluctutations. One day something happens in the government, and the stock market goes down by 200 points. Two days later, it goes up by 300 points. So  there is obviously some instability built into the stock market that if people were able to calculate it they would get very rich. But my impression is  very few people are able to do that. So what understanding of the stock market do you really have? IF ONE WANTS TO CALL IT A SCIENCE...If there are these...I mean I don't invest very much, but I see these fluctuations. They're unbelievable and they make zero sense to me. Maybe they make sense to you, and so it's a very unstable system.

Obviously Karplus is insulting the three economic Laureates and Dr. Fama in particular.
Fama responds quite elegantly

The empirical implication of your statement is the variance of price changes over multiple days should be less than the multiple of the variance over a day. That’s what you mean when you say price changes are volatile. But that's not true. So your presumption was factually incorrect.

The moderator, AAAS CEO Alan Leshner, then saves Karplus from what was about to be an utter thrashing by Dr. Fama.
I haven't done econometrics since 2013. Can someone pls explain Fama's rebuttal in simple terms?


texts:
In the standard model of Aggregate Demand and Aggregate Supply which display equilibrium in all the markets, I often get confused on how a change in one variable will shift curves. Say, output decreases - how can one determine the causality between a change in output with other variables?

For example, can prices change output and output change prices? What about other variables - GDP, interest rate?


texts: Finding the result when Demand is not given within an Economic Order Quantity question?

texts:
I recently came across the following problem on a set of past examination papers for a university module I'm currently taking:

'A video manufacturer produces 8500 video recorders on a continuous
production line every month. Each video requires a tape head unit and these
are produced very quickly in batches. It costs €13,000 to set up the machinery
to produce a batch and €0.30 a month to store and insure a tape head once
made. How large should the batch size be to minimize total costs and how
often will they have to set up a production run?'

I arrived at the following values:
 $$r = 8500, K = 13000, h = 0.30.$$

While trying to apply the formula to find the optimal batch size for a continuous EOQ model, that is $$q^* = \left(\frac{2KDr}{h(r-D)}\right)^{1/2},$$ I noticed that only the rate of production per month was given, not the Demand of the product. Is there some way to calculate this problem to get around this roadblock or am I approaching the problem incorrectly?

I've tried applying the regular EOQ formula, that is $$q^* = \left(\frac{2KD}{h}\right)^{1/2},$$ where Demand is the 8500 value, but I ended up with a seemingly unusual value (which may be completely correct given my lack of experience in this field) : I received an answer close to 27,142 and using $q/D$ to find the time gap between orders I arrived upon roughly 0.3 orders per month.

I came here to ask two things: Is there a way to solve the former continuous model question? Or is the latter question using the basic EOQ model formula closer to being correct?

Thank you in advance, this has been bothering me for the past two days.


texts: How to justify an instrumental variable?

texts:
I am hoping for some tips on what I could do for a term paper in applied econometrics. We are running a 2sls where I want to use a firm's location as an IV. How can I go about justifying it is a valid instrument? More specifically, how would you suggest I can argue the exclusion restriction holds for my instrument. I am thinking of a verbal argument of about a page tops, since I have limited space left. Any suggestions would be greatly appreciated. Thank you.

PS: My endogenous variable is a dummy for whether the business owner is a member of a political party, and my outcome variable is a leverage ra


texts:
First of all, I would like to apologise for the fact that I will include a link in my question rather than a direct question, however, I have no idea how to do it in a different way.

I have been reading this paper recently:
RBC extensions
,

I don't understand one thing completely. On the second page when we are reducing the equation for utility, why cannot we just drop the term:
$$\theta \frac{(1)^{1-\xi}-1}{1-\xi}$$
I was wondering how this could possibly work, because common-sensically:
$$(1)^{1-\xi}=1 \Rightarrow \theta \frac{(1)^{1-\xi}-1}{1-\xi}=0$$
Am I wrong?

Thank you guys!


texts:
I have a look at the meaning of "negative surprise" from google but there is no clear explanation so far.
When listening to Bloomberg Market Concept, in the picture, Surv(M) < Actual,
while  Surv(M) is the median of analysts about what the value of economic indicator would be upon release and the Actual is the one from the official announcement. In this case, they say that it is a negative surprise.
I am wondering why they use the word "negative surprise" and whether there is any easy-to-understand explanation for this term in real life?


texts: What should be firms' product selling strategy when the product market competition increases?

texts:
When the product market competition increases, firms commit some illegal approaches to increase their sales following https://www.hbs.edu/faculty/Pages/item.aspx?num=43347#:~:text=Firms%20with%20more%20competitors%20pass,facilities%20to%20provide%20illegal%20leniency.
Is there any other way for firms to increase their sales when the product market competition levels increase?
I did a regression and found out that firms' sale increase when market competition increase; however, it seems to be opposite to that more firms compete for the same pool of consumers when the market becomes more competitive (firms' sales should decrease).


texts:
I was researching poverty in Africa and was reading about their daily wages.
Based on the article linked, 2/3 of Africans live on less than $1.25 USD, a day.

However, what this article and many other ones don't elaborate on is how that $1.25 is used.

I would like to better understand how African families use their money, and am especially interested to learn how much money goes into savings. For example, maybe 1 dollar is used for food and other necessities, and other $0.25 is kept as savings.

If anyone has any answers or data that may help answer this question, I appreciate any help. Thanks.

Link:
http://global-growing.org/en/content/fact-7-about-three-quarters-african-population-live-less-2-half-population-less-125-day


texts: What are some impressive economics models with very high explained variance?

texts:
I'll start with some examples.

State-level analysis of variation in infant mortality rate: A socio-ecological approach

73% of infant mortality explained in the US by just a few variables.

Exponential correlation of IQ and the wealth of nations

69% of GDP per capita explained by IQ.

Estimating Suicide Rates in Nations that Do Not Report Suicide Statistics

78% of variance in suicide rates explained in Model 2, table 3.

What are some more examples of models with a lot of explanatory power for large scale social phenomena?


texts: I have heard multiple times that a consistent definition of liquidity does not exist. The two wikipedia articles describing liquidity (Market liquidity and accounting liquidity) lack a discussion of this apparent problem within economics. Could someone perhaps provide a reference to a discussion of the problem of defining liquidity and maybe provide a brief summary of the issue?


texts: When a country adopts the Euro, what happens to its debt?

texts: When a country, say Greece, adopted the Euro as its currency, what happened to the debt that was based on the Drachma? Was it converted into Euros?


texts: Is it okay to difference data with different time intervals?

texts:
I have a question that is from an old project and that I want to clarify purely for future research.
The question is, if you have a time-series that occurs at intermittent intervals, say once ever 4, 3 or 1 years, is it still okay to difference this data?
Here is the simple OLS:
d dependent variable = b0 + b1 d independent variable + e
This still appears to me to be a linear relationship, despite the change in the number of years between different obseravtions, these are still in line with the other variables and thus a change in one will still be linear to changes in the others.
For large changes in time for d dependent variable the changes in time the independent variable will also be large, and thus still relative and vice versa. Will this affect OLS in any way?
I would have used LN as well but this is just a example.


texts: By continuity, the upper and lower contour sets of a bundle are closed

texts:
Mas-Collel, Winston and Green's Microeconomic Theory (3rd edition), states that the continuity of a preference relation implies the upper and lower contour sets of a bundle are closed. I would like to know why.

Definition of continuous preference relation:

Definition of open set:

Definition of closed set:


texts:
I am building a lab experiment through otree, ``a Django-based framework for implementing multiplayer decision strategy games."

Basics about otree's forms

Here is an example of how otree gets the players to report their choices (based on the "matching_pennies" game which is part of the templates provided by otree).

In a file named model.py, one finds the following code

class Player(otree.models.BasePlayer):

[...]

penny_side = models.CharField(choices=['Heads', 'Tails'])

[...]

Then in views.py one finds

class Choice(Page):

form_model = models.Player
form_fields = ['penny_side']

Finally, the form is displayed to the end user through choice.html by inserting

{% formfield player.penny_side with label="I choose:" %}

What I would like to do

is create a flexible experiment in which the number of choices that players have to make varies with a parameter x. That is, I want the whole framework to generate x possible choices by just setting a parameter x, and not having to go update all the files manually. This is in order to make my life easier if we ever change the experimental design, and to make the code useful to others with different experimental design (I plan to release it on Github at some point).

It seems like it should be fairly easy to do with a couple of loops, but I am having trouble using lists given the way otree is structured.

From what I understand,  I only see one very nasty way to have the number of choices depend on a parameter x. I first give each choice a different name in model.py, e.g.

class Player(otree.models.BasePlayer):

[...]

for i in range(x):
        exec("""choice%d = models.IntegerField(
        choices= ['Heads','Tails'])""" %i)

[...]

then pass the name of all those choices along to view.py, e.g.

class Choice(Page):

all_forms = list()
for i in range(x):
    all_forms.append('choice%d' %i)

form_model = models.Player
form_fields = all_forms

and finally, find a way to loop through all the forms in Choice.html; something like (I know the code below does not work, just to give the gist of it)

{% for p in range(x)  %}

{% formfield player.choice{{p}} with label="I choose:" %}

{% endfor %}

My question are:

This is all very dirty, and looks overly complicated : lists have been invented to avoid this kind of crazy naming process. Do you see a way to make this work with lists instead?
If that's the only way to hack into otree and have the number off choices depend on a parameter x, so be it. But I am still unable to figure out a way to generate the desired set of forms via a loop in Django (obviously the example above does not work, for many reasons.).


texts: Utility maximimization for unusual Leontief utility function

texts:
The problem is basic utility maximization subject to a budget constraint with
$$u(x,y) = min\{x+y,4\sqrt{x},4\sqrt{y}\}$$
$$p_x = 1, p_y = 1, M = 4$$

I will have to first plot the Indifference Curves.

I am able to figure out the following:

If $x < y: u(x,y) = min\{x+y, 4\sqrt x\}$,  else $u(x,y) = min\{x+y, 4\sqrt y\}$.

But I get stuck here. For ex: if I am in the region where $x<y$, I can't find the sub-region where $x+y < 4 \sqrt x$ or $x+y > 4 \sqrt x$.

Cheers!


texts:
I find coins extremely inconvenient to carry and count. I feel I'm not the only one to find them annoying and inconvenient.

What are some economic reasons why all cash money isn't paper and coins still exist?


texts:
In this question, I'm referring to "web spam" on search engines (not email spam), such as placing misleading keywords on one's web page so that a pornographic site, for example, would get a lot of traffic that isn't necessarily related to what the site has to offer.

I am interested in understanding the dynamics, or rather, the economics behind this kind of activity, preferably with some numbers as examples or as data.

Links to studies are also appreciated.


texts: What is used more: economic growth rate compared to previous quarter (GPSA), or growth rate compared to the same quarter of the previous year (GYSA)

texts:
For my thesis I'm writing about the Baltic states and why they didn't vote out their incumbent governments despite undergoing severe austerity. As part of that I'm looking at their growth rates from quarter to quarter, but the OECD website gives me two options to do so:
Growth rate compared to previous quarter (GPSA)
Growth rate compared to same quarter of previous year (GYSA)

I'm not sure which is used more often in academic literature, or is more useful for my purposes. I've seen both being used in newspapers, and so I'm not sure which is better. GPSA seems more volatile, but I think I've seen it being used more often as well.

Any ideas?


texts: In a bank-based economy, how do banks determine how to split the economic pie with the businesses?

texts:
In an economy with a bank-based financial system (little or no stock market activity allowed), I think I've got this much down:

The banks lend to businesses, who then make products and services. The businesses pay their suppliers according to the market rate. In other words, the businesses share their piece of the pie with suppliers according to how valuable they think the supplier is to them.

However, I'm not quite sure how the banks determine how much the businesses should get for their efforts. I am assuming that the banks don't compete among themselves to sell loans to the businesses. The dividing of the pie between the banks and businesses in this case seems rather arbitrary. I know the banks simply expect an interest on their loan money, but it seems like the fixing of the interest rate seems arbitrary. Is it based on perceived risk of the industry in which the business operates? How would this risk be calculated for emerging industries, where there is little or no information?


texts: Why does a firm in a perfectly competitive market not need to cover fixed costs in the short run?

texts:
While studying, I came across the solution that in some cases only the produces surplus, PS, needs to be positive, however not the profit, $\pi$. That means that if $PS \geq 0; p \geq AVC$, whereas, e.g. in long-run, $\pi \geq 0; p \geq AC$ to supply a positive amount.

I wonder, why the fixed costs need not to be covered in some cases (e.g. $R(Y) \geq VC(y) \Leftrightarrow PS \geq 0)$.


texts: Clarification on amortization of constant payments

texts:
I have found this formula on wikipedia :
$$P=C_k(1+i)^ {(n-k+1)}$$

which describe the constant payment that has to be paid every year ($C_k$ is the part of the initial loan that is extinguished with the $k$ payment) in order to pay off a loan after a period of $ n $ years , all of them at the constant annual interest rate $ i $ .

My problem is that $ 1 + i $ is elevated to $ n-k+1 $ while I expected $k$ because it's the numbers of years passed when the $ k $ payment is done . It seems that the loan is paid inside out , namely starting to pay the interests at the time $n$ on the first year and so on…Am i right?


texts: If we estimated the value of all the assets in the world and compared it with the estimated total wealth of individuals, would the results be similar?

texts:
Say we estimated the value of all assets (money, stocks, bonds, property, etc.) in the world.

Next we estimate the wealth of all the individuals in the world.

Would the two resulting values be similar or substantially different? If they would be substantially different, then why?

I am happy for people answering the question to use the definition of wealth they feel is most appropriate.


texts:
Assume the following: all firms are identical, i.e. at each time period $t$,
$\forall i$, $j: F_{t}^j = F_{t}^i = F_t$ and the technology is CRS. All consumers have the same endowment of capital $\forall i$, $j : k_0^i =k_0^j = k_0$. All consumers have the same time endowment in each period t, i.e. $\forall i$, $j : \bar{n}_t^i = \bar{n}_t^j = n$ . All consumers have the same preferences, i.e. $\forall i$, $j : u^i = u^j = u$ with $u$ strictly concave.
The question asks to state clearly and prove a theorem which says that the CE of this economy is the same as one with one firm and one consumer.
Now I was thinking that based on these assumptions: If all firms are identical within and across sectors, and the technology are CRS, all HH have the same $k_0^i$ and $U^i$ , and $U^i$ is strictly concave then, CE of the original economy is the same as one with one firm and one household. By using the First Welfare Theorem we can show that this CE is Pareto Optimal.


texts: When can one safely talk about decreasing marginal utility?

texts:
One thing I hear a lot is talk of decreasing marginal utility—the idea being that additional units of a good become progressively less attractive the more units of that good one has already.

However, this always made me a little uncomfortable because of the ordinality of utility. If we take the trivial case of a world in which there is only one good with utility $u(x)$ satisfying $u'(x),\ u''(x)<0$ (decreasing marginal utility) then it is clearly possible to construct an increasing function $f$ such that $(f\circ u)$ is linear in $x$. Moreover, since utility functions are invariant to monotone-increasing transformations, $(f\circ u)$ is a utility function that represents the same preferences as $u$ (but now has constant marginal utility). Thus, in a world with a single good it seems that it never makes sense to talk about diminishing marginal utility.

My question is this: consider a market with $L>1$ goods. Is there a formal condition under which we can safely talk about decreasing marginal utility? That is to say, is there a class of preferences such that every valid utility representation, $u(\mathbf{x})$, has $u_{ii}(\mathbf{x})<0$ for some $i$?

Alternatively, is there some simple proof that, for $L>1$, the existence of a utility representation with $u_{ii}(\mathbf{x})<0$ for some $i$ necessarily implies that all utility representations have $u_{ii}(\mathbf{x})<0$?


texts:
The question I am given is the following: Consider an economy that has only three goods, mineral water, orange juice, and wine available in ﬁxed amounts, and three agents, A, B and C. So in this economy agents have no money initially. There are perfectly competitive markets for these three goods. The agents are not allowed to hold any negative amount of goods. Answer the following questions.

(a) Suppose that A owns all the mineral water, B owns all the orange juice, and C owns all the wine. A only likes orange juice, B only likes wine, and C only likes mineral water. What are the equilibrium prices for mineral water, orange juice and wine and the equilibrium quantities consumed by each individual?
(b) Now suppose that A owns everything and A only likes drinking orange juice, both B and C own nothing, both B and C like drinking wine only. Discuss the equilibrium quantities consumed by each individual.
(c) Now suppose that A equally likes these three goods, B equally likes the mineral water and orange juice, but does not like wine at all, and C only likes wine. Without considering who owns mineral water, orange juice, or wine initially, what allocations are Pareto optimal?

My question is about sub-questions (b) and (c). For (b), if A owns everything and B and C own nothing, apparently there will be no trade. So what is the point for asking this question? For (c), if there is no utility function, how could I tell what is Pareto optimal? I really wish someone could teach me how to answer this kind of question and show me some examples. Thank you, and I wish you a happy new year.


texts: Can the monetary policy affect wealth inequality?

texts:
I think that it is often assumed that monetary policies have little or no impact on inequality.
At least in the public the monetary policy is not seen as a political question the same way that fiscal policy is.
Let us consider two different ways the fed can stimulate the economy:

QE. The feds buy back US treasury bonds from banks.
Say the house prices are so high that the average consumer can not afford to buy a house even if the interest rates are zero.
Instead the banks move the money into the stock market.
The stock prices go up. The ones selling the stocks to the banks are the richest.
They use the money to buy US built luxury yatchs. This employs more people. The increased consumption of the newly employed people show up in the CPI but not the yatchs.

Helicopter money. Every US citizen gets a certain amount of USD.
Most of this is spent and shows up in the CPI. Increased spending means more employment.

The two different strategies can result in the same inflation and low unemployment.
However in the strategy 1 the rich now owns a lot of luxury yatchs so the effect on inequality is not the same.
It therefore seems that in an already inequal society the choice of monetary policy can worsen the wealth inequality?
Am I wrong in my reasoning?


texts: Will there be any competition amongst cement retailers?

texts:
If we consider a cement manufaturer in a given country, say India, then will the cement retailers of that companies' product compete with each other? And if so, then what kind of a competition will it be?

As far as I think, since the prices and the product will be the same the retailers competition will be close the Perfect competition, however consumers in the case of cement do not have perfect knowledge about the product(Considering non-trade consumers). So it might be monopolisitic competition. It will be really helpful if one could give a solid argument regarding the existence and the kind of competition that might occur between cement retailers...

Thank You.


texts:
I used to read Barro 1977 as

(1)

  Prices not moving in a long-term contract is not sufficient for these prices to be suboptimal. That is, there can be an optimal pricing sequence in a long-term contract in which prices do not change (for example, insurance reasons)

However, many papers these days (for example, Hall 2005) cite that paper as

(2)

  Price rigidity that would terminate a contract is sub-optimal and should be subject of renegotiation, if the project yields a surplus.

Both quotes my own words.

This is a rather historical question, but when did the interpretation switch from (1) to (2)? Was (2) implied all the time, and I just didn't get it immediately from reading the paper? Or was it an implied corollary that the profession came to agree about later on?


texts: how can a developing country improve its infrastructure?

texts: Developing countries have poor infrastructure, I know, but how can it increase its quality? Receiving aid is a solution that pops to mind first but are there any other solutions? I know that some countries can attract FDI and improve their infrastructure but I think that's only when that firm gets something in return like natural minerals. Pretty sure China has attracted lots of FDI because it has large reserves of mineral but what if a county has nothing to offer in terms of natural resources?


texts:
I am trying to find some literature on a variation of a Stackelberg game in which two players, P1 and P2, interact in the following order:

P1 plays
P2 plays
P1 plays

The best guess I have for the name of this sort of game, inspired by the "leader-follower" setting of a Stackelberg game, is "leader-follower-leader" but that's not giving me many useful results.

Question: Does anyone know if such a game has a name or has been studied?


texts: i just maked a model about the money demand in USA on the between 1962 and 1979 and i just found that the money demand was positively influenced by the interest rate. I know i'm not given any details but i would like to know what happened between thoose years, that can explain why the money demand was positively correlated with the interest rate thoose years. What happened in the US during thoose years?


texts: Deriving optimality conditions in the New Keynesian model framework with an undefined consumption function

texts:
I am trying to solve the household's optimization problem in the New Keynesian model framework, where utility is given by
$$
E_0\sum_{t=0}^\infty \beta^t \mathcal{U}(C_t,L_t,N_t;Z_t)
$$
and period utility is defined as $\mathcal{U}(C,L,N;Z)=(U(C,L)-V(N))Z$.
$U(\cdot)$ is increasing and concave, $V(\cdot)$ is increasing and convex and $h(L/C)\equiv U_l/U_c$ is a continuous and decreasing function that satisfies $h(\bar{\varkappa})=0$ for some $0<\bar{\varkappa}<\infty$.
$L_t\equiv M_t/P_t$ and it is assumed that $C_t,N_t,L_t\geq 0$ for all t.
The household's budget constraint sequence is given by
$$
P_t C_t+B_t+M_t=B_{t-1}(1+i_{t-1})+M_{t-1}+W_t N_t+D_t-P_t T_t
$$
for $t=0,1,2,...$ and we rule out Ponzi schemes by imposing
$$
\lim_{T\to\infty}\Lambda_{0,T}\mathcal{A}_T\geq0
$$
with $\mathcal{A}_T\equiv [B_{t-1}(1+i_{t-1})+M_{t-1}]/P_t$ as the household's real financial wage at the beginning of period t. $W_t$ are nominal wages and $D_t$ are dividends paid by firms.
I am supposed to arrive at the optimality conditions below

Euler equation: $U_{c,t}=\beta(1+i_t)(P_t/P_{t+1})U_{c,t+1}$

Intratemporal labor supply: $W_t/P_t=V_{n,t}/U_{c,t}$

Money demand schedule: $h(L_t/C_t)=i_t/(1+i_t)$

In combination with the transversality condition: $\lim_{T\to\infty}\Lambda_{0,T}\mathcal{A}_T=0$
How do I set up the Lagrangian?


texts: Sources of historical cross-country government debt to GDP data

texts: I am looking for a source containing debt (government debt) to GDP data of different governments. Do you know of any reliable sources with data going back as far as possible (at least 1960s)?


texts: Define and characterize equilibria of the following game

texts:
Consider the following game between a monopolist firm and a consumer. Consumer's income is $1$, and he needs to allocate it between period 1 and period 2 consumption to maximize his utility $u(c_1,c_2)=c_1+c_2$, where $c_t$ is the consumer's period $t$ consumption. Period 2 prices are given exogenously by $P$. Assume that $P$ is random and takes value in $\{\bar{p},\underline{p}\}$ with equal probability where $\bar{p}>\underline{p}>0$. It is common knowledge that the firm knows $P$, and the consumer knows $P$ with probability $\alpha$. The timing of the game is as follow. The firm chooses the first period price $p$ to maximize its profits in period 1. After observing $p$, the consumer decides how to allocate his income between $c_1$ and $c_2$.

1) Define an equilibrium for this game

2) Characterize the equilibria.

I am having difficulties in formally setting up dynamic games and I would therefore appreciate if someone could check out the solution I provided below, and most importantly whether the definition of equilibrium I provide (strategy sets, strategies, optimality conditions, etc) is correct, and if not why?
Thank You


texts: If my IV (denoted Z) equals 1, my endogenous var D always equals 1; is this a problem?

texts: I have a binary instrumental variable Z={0,1} and a binary endogenous variable D={0,1}. By construction, D=1 necessarily holds if Z=1. There are also cases where D=1 if Z=0, but there are no cases where D=0 if Z=1. (Side note: in the first stage of 2SLS, I get an F-value of around 3000.) Intuitively, I feel I should have more variation, i.e., that I should also have cases where D=0 if Z=1. Are my intuitive worries justified?


texts:
My understanding of forex exchange is that when there are two currencies cur1 and cur2, they are balanced in the world with a certain rate. People who buy cur1 at a high rate and sell in a lower rate effectively end up paying for the profit which someone has made by selling cur1 when the rate was high and buying when the rate was lower.

In a hypothetical world where no one sells their reserve of cur2 but people having cur1 reserves keep on buying cur2, how will the system be balanced? Who will gain or loose to compensate for the imbalance created? Please correct me if you think the question is incorrect or missing something.


texts: Supply/Demand Shift (Find New Equilibrium)

texts:
Starting: supply curve $y=x+10$ and demand curve $y = -x+30$ with equilibrium at (10, 20).

The problem states that DEMAND shifts leftwards by 3 units and to find the new equilibrium. My professor did not specifically state the two equations, but a 1 to 1 relationship is implied, so I was able to find them.

(Meaning that for example, the original supply curve would be a line consisting of points $(10,20), (11,21), (9,19)$, etc. and the demand curve would have points $(10,20), (11,19), (9,21)$, etc. So slope of $1$ and $-1$)

With equilibrium at $(10, 20)$. My professor goes on to complete the problem by moving 3 units leftward from 10 on the x-axis and 3 units down from 20 on the y-axis. His new equilibrium is $(7, 17)$.

I didn't think that it was an accurate way to represent/find the new equilibrium. Supply/demand graphs are supposed to shift at every point. I then plugged it into a graph and found that it was incorrect.

DEMAND shifts leftwards by 3 to create a new DEMAND curve $y=-x+27$ with equilibrium at $(8.5, 18.5)$ which is not $(7, 17)$.

Was the professor wrong?


texts: Do machines reduce labor... or so they redistribute, alter, and globally increase labor?

texts:
John Stuart Mill famously remarked that labor-saving machines have not saved one minute of labor. More seriously, Marx argued, roughly, that machines can gain temporary market advantage, but cannot produced "surplus value," which come only from increasing attachment of labor. (Though Marx's value theory is complex and slightly ambiguous.)

Nonetheless, observers, neoliberal and socialist alike, seem to agree that machines are "productive" and "labor-saving" overall. For neoliberals this is productive "innovation" and for leftists "technological unemployment." The idea of a future where "most work is done by robots" seems remarkably widespread. This strikes me as a fallacy for three reasons.

First, in a rough adaptation of Say's Law, someone must obviously make, fuel, and maintain the machines. Someone else must, for example, mine the additional metals, feed the miners who mine the metals, raise the farmers who feed the miners who....etc.

Second, the rise of "labor-saving technology" since the 19th century has come with a huge, five-fold increase in the  global laboring population. The "local" increases in per-laborer productivity appear more than offset by the attachment and utilization of increased, lower-cost labor worldwide.

Third, the idea of "robots doing all the work" would seem to violate the Second Law of Thermodynamics. Machines cannot run or reproduce themselves. The only "perpetual motion machine" is life itself. Without humans all machines succumb to entropy almost immediately. This would apply to any level of technology.

I am not arguing that machines make no difference. But is this difference primarily local and conditional? Is the local "productivity" of machines primarily and irreducibly a way of displacing labor globally... and redirecting labor through "machines" from lower-cost to higher-cost zones?

Above all, is it logically possible for machines to produce more "work" in total than goes into them? Again, even apart from issues about "quality of work," I am always surprised at how many people seem to assume this "robot replacement scenario" is plausible.

P.S. Though I would like to respond to answers and comments, the "comment" function is not working for me at the moment, I have asked "Help" about it. My argument from thermodynamics appears to be misunderstood, I will address as soon as possible.


texts:
I have found the following NPV (Net Present Value) formula:

CF = unlevered cashflow

i = interest rate (WACC)

$$NPV = -I_0 + \frac {CF_{2019}}{(1+i)} + \frac {CF_{2020}}{(1+i)^{2}} +\frac {CF_{2021}}{(1+i)^{3}} +\frac {(assets_{2021}-liabilities_{2021}) - \sum_{}CF}{(1+i)^{3}}$$

I have always seen NPV formula without that last weird addition of assets-liabilities etc.

Can someone explain me its meaning?


texts: What does "agent" mean in Pearce's formulation of extensive form rationalizability?

texts:
While reading Pearce(1984), I can't understand what "agent" $j$ and agent $ij$ mean on page 1041:

  Consequently I associate a conjecture $$ c^{ij} = (c^{ij}(1), ... ,
> c^{ij}(N)) $$ with each information set $I^{ij}$ in $\Gamma$;
  $c^{ij}(k)$ represents what an "agent" $j$ for player $i$ believes,
  once $I^{ij}$ is reached, about what player $k$'s mixed strategy is. A
  conjecture $c^{ij}(k)$ over a set $A^k \subseteq M^k$ can be regarded
  as an element of $\bar{A}^k$ (see Appendix A).  I have noted that
  an agent $ij$, upon being reached, should not entertain a conjecture
  that does not reach $I^{ij}$. A further restriction, not invoked in
  other solution concepts, is appropriate: if the information set can be
  reached without violating the rationality of any player, then the
  agent's conjecture must not attribute an irrational strategy to any
  player.

Some notations:  $I_{ij}$ is player $i$'s $j$th information set, $M_k$ is player $k$'s mixed strategy set and $\bar{A}^k$ is the convex cone of $A^k$.

So an agent is definitely different from a player, but what else can it be to form a belief?


texts:
Really, what are indexes in Economics? And bilateral and multilateral indexes?
Take the Malmquist Index: it is a bilateral index, even though it uses four numbers: $Q_1$, $Q_2$, $Q_3$ and $Q_4$?
And superlative index numbers?!


texts: Why is the purchase of assets not entirely tax-exempt in the year of purchase?

texts:
I'm a sole proprietor who has bought some assets for my business, like a chair. My accountant told me that I can't claim the entire price as a business expense in the year I incurred it, and instead have to depreciate it over 10 years.

Depreciation seems equivalent to paying more tax than otherwise, and getting a repayment from the government every year for a decade. I see several disadvantages with this:

It ties up my working capital. At the margin, this prevents some investments being made that would otherwise have been made, and bankrupts some businesses.
A rupee paid to me a decade later is worth far less than a rupee today, so this is effectively a hidden tax.
It makes tax accounting more bureaucratic, since I now have to track all assets and depreciate them over many years at different rates. This takes my time away from running my business. And makes me a hire a CA, wasting more money.

Why do governments subject assets to depreciation for tax deductions? Is there some fundamental reason I've missed?


texts: Examples of a good student's project with minimal economical knowlege

texts:
I have to provide a theme for students for a project like a bachelor's thesis. Students know all the basic math like calculus, linear algebra, ODE etc, but nothing fancy like PDE and stochastic calculus. Plus they supposed to have some very basic courses in economy. What could the possible themes be?

From one hand it should be something  really of a serious project, so a student can make by himself one thing then another and so on, and from the other hand it probably should not require lots of purely economic concepts (preferably only  basic ones).

Could it be  (given the absence of deep economical training) something in mathematical modelling or analysis of some economical processes? I want to catch the gist of it, so the more examples the better. Please, if possible, not only a theme's name but a few words what a student is expected to do. Sorry if it's too broad a description, but I have a very vague idea that a good project of this sort would constitute.


texts: A question about a derivation in Gali's Monetary Policy book

texts:
In Chapter 3 of Gali's famous Monetary Policy book, he measures the effects of a monetary policy shock.

The interest rate rule is:

Then a shock $v_t > 0$ occurs.

He proceeds to measure how this affects $y$, $\pi$ and $r$ (output, inflation, and real interest).

As you would expect, $y, \pi$ go down, $r$ goes up. However, he then derives the following equation, which measures what happens to the nominal interest rate:

However, I simply cannot for the life of me figure out how he derives this equation. I mean, I totally get that he's just using the Fisher equation. But why doesn't he go back to the interest rate rule from the first picture and use that? Why is he suddenly ignoring his own rule and relying fully on a basic identity like the Fisher equation?


texts: How do increasing tax rate helps control inflation?

texts: Also, do the opposite that is lowering tax rate controls deflation?


texts: How much the wealth inequality increased in the USA in the last decades?

texts:
Are there any studies trying to measure the increase of the wealth inequality in the USA?

Say for example how much it increased, comparing with 1990. Or compared with any other moment in time after 1970.


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I am following this paper . They have different suppliers and one buyer and They are using auction to select best suppliers Suppliers will submit. suppliers offer a multidimensional bidding on quality Q and price p. The “quality” Q includes not only the quality of the product or service but also all its nonmonetary characteristics. The buyer derives utility from a contract
U(Q,p)= V(Q)− p
where V(.) is the buyer's valuation function of quality Q
The best suppliers will be selected using a scoring rule
S(Q,p)= V(Q)− p
I am confused there . Is this scoring rule is any standard in economics to calculate bet suppliers? Or this concept comes from? any one here to help
https://onlinelibrary.wiley.com/doi/epdf/10.1002/mde.3237


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I am reading the first section of chapter 10 of the Obstfeld and Rogoff textbook Foundations of International Economics and I have a doubt in how the transversality condition is obtained. Even though there is a footnote saying that it is obtained by iterating the period budget constraint, after trying a little bit I still cannot get it.

The period budget constraint is given by:

$$P_tB^j_{t+1}+M^j_t=P_t(1+r_t)B^j_t+M^j_{t-1}+p_t(j)y_t(j)-P_tC^j_t-P_t\tau_t$$

where the transversality condition is:

$$\lim_{T\to\infty} R_{t,t+T}\bigg(B_{t+T+1}+\frac{M_{t+T}}{P_{t+T}}\bigg)=0$$

Could someone please shed some light on how to start iterating the budget constraint in order to obtain the TVC?

Thank you


texts:
I found some Anthracite coal. I know a coal bed of this quality is worth money? I also know that there is a "no pun intended" carbon foot print if I decide to share my findings to others.

Economics wise would the coal be worth more now or 20 years from now at our current consumption?

I could not find a SE for Ethics, but I wander is this something I should buy and sit one for environmental sake?


texts:
In my economics classes we have studied some really rudimentary concepts about insurance. I'm not really sure what qualifies as insurance to be honest.

I was wondering if options are considered a form of insurance? Is that the right way to think about options?

Perhaps a better way of phrasing the question is, "Is the primary purpose of options to provide insurance against changes in the stock's underlying value?"