texts:
$$\begin{aligned}
&\begin{array}{|c|c|c|c|}
\hline \text{Player 1 / 2}& x & y & z \\
\hline X & a, a & a, 0 & a, 0 \\
\hline Y & 0, a & 3,0 & 0,3 \\
\hline Z & 0, a & 0,3 & 3,0 \\
\hline
\end{array}
\end{aligned}$$
Consider that $a \in (0, +\infty)$ I know that if $a=1$ then the NE is $(X,x)$ yet I don't know how to solve for the NE when $a \in (1,3)$ and $a \in(0,1)$ . My attempt was writting the conditions of indifference to find the mixed strategy NE but somehow I still don't arrive to a clear answer. Also I don't now if I should consider all of the possibilities of the support or if there is any shortcut.


texts: Should free market consumers have the maximum information easily available?

texts:
As far as I know, free markets rely on well-informed consumers. If this is the case, shouldn't an efficient free market provide consumers as much information as possible about a product so that the consumer can accurately tell the market what they want?
E.g., some people pay more for organic milk. They know which product is organic since it's labelled. What people might not know is whether or not organic milk produces more Co2e to produce per litre. Assuming for the sake of the question that organic milk is more carbon intensive due to reduced yields, how are consumers supposed to know this and weigh up whether they care more about greenhouse gas emissions or animal welfare when buying milk?
Or to take another example. The difference between top-end smartphones is basically the same, but if one product's supply-chain information included "made with child labour and Uigher slaves in concentration camps", people could factor that into their purchasing decision.
I'm not a well-informed consumer. I know I'm not, but there's not a lot I can do about it. (How am I, as a consumer, supposed to find out whether the pair of jeans I'm about to buy is made of cotton from a plantation which is destroying the Aral sea?) But I thought the free market relied on well-informed consumers pushing the market in certain directions. If that's the case, shouldn't products be accompanied with as much information as possible so consumers can make the best choice?
Obviously companies won't advertise the fact they use slave labour voluntarily, so shouldn't an efficient free market be accompanied by the kind of regulation which makes this idea of maximum information possible?


texts: Number of observations in different panel data regressions

texts:
Given a balanced two-period panel data, with lets say 1000 observations on 500 individuals.

When you estimate a pooled OLS regression and first-differences regression is there a standard in the economics literature on how you should report number of observations.

It seems most natural for me to report 500 observations in the case of first-differences.

This might seem trivial. But better follow any standard if it exists.


texts: Market mechanism design and decision rule based on a graph

texts:
I am doing a micro course right now. I came upon this question while studying and I was hoping for help/hints on how to solve it or what resources to consult to better understand the topic.

the general layout was :
Mechanisms
Binary: yes, produced; no, not produced
Decision rule, a(v') specifies the chosen alternative
Transfer rule, t(v') specifies transfers p(v')=-t(v')
Weakly budget balanced:
Sum of payments at least equal to costs

However, now We are given a decision rule represented by the blue triangle. The line represents the combinations of player 1&2's valuation such that v1+v2=< cost but now no longer the 'diagonal of the rectangle'.
We are then asked whether
1) the decision rule can be done with a truthful mechanism
2)can a decision rule be done with any mechanism without ending up with a budget deficit
3) can a decision rule be done under the participation constraint that no one ever ends up with a negative utility
4) can a decision rule be done under the participation constraint that no one ever pays more than their valuation.

I really do not know how to approach this question simply based on the graph nor do I understand the "decision rule". If anyone could point me in the right direction I would be really grateful.


texts: Payoffs in an infinitely-repeated game with discounting

texts:
Consider a game with the following payoff matrix:

3,5   0,0   0,0
0,0   5,3   0,0
0,0   0,0   0,0

Suppose the game is played infinitely many times, and both players have discount factor $\delta$.

The players want to create the outcome $4,4$ using only pure strategies. Intuitively, they should alternate between the (3,5) and the (5,3). This will give the row player:

$$(1-\delta)\sum_{t=0}^\infty \delta^{2t}*3 + \delta^{2t+1}*5 = \frac{3+5\delta}{1+\delta} $$

and the column player:
$$(1-\delta)\sum_{t=0}^\infty \delta^{2t}*5 + \delta^{2t+1}*3 = \frac{5+3\delta}{1+\delta} $$

The payoff vector goes to $(4,4)$ when $\delta \to 1$, but otherwise it is not exactly $(4,4)$.

I am looking for references about the following questions: in what conditions is it possible to attain exactly a desired payoff vector with only pure strategies (for an arbitrary game and arbitrary number of players)? And how this payoff vector can be constructed?

I looked at some papers about folk theorems for discounted infinitely-repeated games. The problem is that they usually assume that $\delta\to 1$, which is not always true in practice.


texts: A case where the solution to Expenditure Minimisation Problem is not a solution to Utility Maximistion Problem

texts: I am looking for a preference relation which satisfies the above property.


texts: [Graduate Macro]Land in the Economic Growth Model: CES Function

texts:
I am an undergrad student trying to study grad macro. I have been trying to solve exercise problem in Barro's economic growth.

The model is about adding land in the Ramsey Model. The model goes as follows:
$$Y=A\Bigl[a(K^\alpha L^{1-\alpha})^\psi+(1-a)\Lambda^\psi\Bigr]^{1/\psi}$$

Now, the questions asks what condition of $\psi$ can ensure that $Y/L$ is constant over time, and what condition will make $Y/L$ steadily decrease over time.

I have derived the per capita intensive form as follows:
$$y(t)=A\Bigl[a(k(t)^\alpha)^\psi+(1-a)\lambda^\psi\Bigr]^{1/\psi}$$

However, I do not grasp the meaning of how different value of $\psi$ can affect the outcome.


texts: Proving that constant absolute risk aversion and relative risk aversion implies independence of initial wealth

texts:
I was able to prove that for a portfolio with one risk-free asset and one risky asset, if the Arrow-Pratt measure of absolute risk aversion is constant (i.e., constant absolute risk aversion, CARA), then the dollar amount invested in the risky asset does not depend on the agent's wealth. Similarly, with constant relative risk aversion (CRRA), the proportion of wealth an agent invests in the risky asset also does not depend on the agent's wealth.

Now, how can I prove the more general statement that with CARA and $N$ risky assets, the amounts of wealth invested in each of the $N$ risky assets is independent of the agent's initial wealth? As well as the analogous statement for CRRA?


texts: Effect in the Ramsey model of a decrease in population growth

texts:
In the basic Ramsey model with technological growth, assuming that the economy is in a steady state, how would a sudden decrease in the population growth rate $n$ impact the steady states value of consumption and capital?

I obtain the following dynamics for the model:

$\dot{k} = f(k) - c - (\delta + n + g)k$

$\frac{\dot{c}}{c} = \frac{1}{\theta}[f'(k) - \delta - \rho -\theta g] $

where $\delta$ is the depreciation rate, $g$ the rate of technical progress, $\theta$ the risk aversion factor, $\rho$ the discout factor, $k$ the capital per effective worker, $f(k)$ the production per effective worker, $c$ the consumption per effective worker and $ f(k) = k^\alpha $

The steady state values, ($\dot{k}=0, \dot{c}=0$):

$\hat{c} = \hat{k}^\alpha - (\delta + n + g)\hat{k}$

$\hat{k} = \left( \frac{\delta + \rho + \theta g}{\alpha} \right)^{\frac{1}{1-\alpha}}$

I believe that there would be a sudden increase in the steady state consumption that would persist in the long run and no change in the capital. Is it right?


texts: Logic Fallacy in a single government purchase creates infinite GDP?

texts:
Suppose the government increase its spending by $100 million. And suppose we are talking about intermediate level macroeconomic class. Let the marginal propensity to spend be 0.5.

Now the total GDP should increase by 100/0.5=200 because the increased spending increases people's income and thus further increase the spending, so on and so forth. But wait, what if the marginal propensity to spend is 0! Then we have an infinite increase in GDP! OR if this sounds just wrong, let us consider where the unspent money get saved in banks. And banks will lend the money out which induce firm to invest more. So the investment will increase people's income, and hence the same effect as before. So in the end, we see that the increase in government spending will increase income by the same amount, and then increase spending again by the same amount (the saving also get invested, so it increases the GDP), and etc.

This is clearly not the case in the world we live in. What is the catch?


texts: What caused the increased market trading since late 2016?

texts:
I was looking at the market (DOW) performance today and noticed an oddity:  Beginning late in 2016 trading activity roughly tripled.  The change was sudden and remarkably consistent.  What would cause such a marked change in market behavior?

Source: http://money.cnn.com/data/markets/dow/

I'll note that Yahoo displays essentially the same phenomenon, so it's not just something wonky with CNN:

Source: https://finance.yahoo.com/

While the NASDAQ doesn't show this effect, the S&P 500 does:

Source: http://money.cnn.com/data/markets/sandp/


texts: Log of a Negative Market-Book Ratio in a Regression Model

texts:
As noted in this post, the book value of a company is its assets minus its liabilities.

I am reading this paper: "The price of sin: the effect of social norms on market" by Hong and Kacperczyk. One of the paper's hypothesis is that institutional investors are less likely to hold sin stocks. To demonstrate this, the following initial (Fama-Macbeth) regression was run as a benchmark:

$$IO \sim Logsize + Beta + LOGMB + PRINV + STD+ RET $$

IO is institutional ownership
Logsize is the market cap
Beta is the beta of the sector the stock belongs
LOGMB is the log of the market to book ratio.
PRINV is the inverse of price
STD is standard deviation of monthly return
RET is log of arithmetic of previous year's monthly return.

My question here is that, because the Market book ratio can be negative, how can we take log of this?

It is not specified in the paper how this is treated. I have the strong suspicion that it is likely any company with negative book value for whatever reason is ignored. Surely this would introduce some sort of bias. Does anyone know what is the standard practice?


texts: If every company in the economy earns zero economic profit, can they contribute to real economic growth?

texts: I understand that zero economic profit does not equal to zero accounting profit. It means that every resource that goes into the production is perfectly utilized considering alternative uses in the economy and nothing more. If every company in the economy is earning zero economic profit, can they contribute to real economic growth? (Ceteris paribus)


texts: Why is price plotted as a dependent variable?

texts:
Watch the video from 5:35:

law of demand

In the description, the narrator says that "demand depends on price".
However, in the plot, he is keeping price "P" as the dependent variable.

How does that make sense?


texts: What happens on a banks balance sheet when the borrower submits loan payments?

texts: When the banks lends me money my demand deposits end up in his liabilities and my loan is on his assets. Lets say I paid that money to somebody who has an account at another bank. Lets ignore how the two banks settle that and just focus on that the bank has no liabilities to me and still has my loan on his assets. My employer pays me a salary via a bank transfer in my bank. No changes to my banks net liabilities - they just swapped owners. Now I make the loan payment. Does the bank just simply destroy my demand deposits? What happens to his asset side when I make that payment? What happens eventually to the loan on the banks assets when I finish paying my loan?


texts: Determining cost from production function, wage, and rental rate

texts:
So I have a production function $Q=2K + 20L^{1/2}$ and I suppose the wage is $w=5$ and the rental rate is $r=9$.  I want to find the long-run cost of production, which I know is constrained by $\frac{MP_{L}}{MP_{K}}=w/r$ and therefore

$$\frac{10L^{-1/2}}{2} = 5/9$$

Which implies $L=81$.  However, I don't see how to find my quantity of capital, $K$.  Any help would be appreciated.


texts: Is First Order Stochastic Dominance (FOSD) relation convex?

texts:
A convex relation is that $x\succeq y$ implies $\alpha x+(1-\alpha)y\succeq y$.

Let $>_{FOSD}$ be $\succ$, is the FOSD convex? Intuitively it seems convex.


texts: Why can’t we know the specific outcome of an exchange economy with initial resource endowment?

texts:
In a 2-person exchange economy we define the contract curve as the subset of all Pareto-efficient outcomes within the ‘lens’ bounded by both agents’ indifference curves through $\vec{R}$ which is the initial endowment vector. It is claimed that we cannot know which point on the contract curve is the actual outcome, as it depends on each of the agents’ bargaining skills. I read this on the Wikipedia page about Contract curves.

But isn’t the solution to the optimisation problem a unique price ratio $\frac{p_1}{p_2}$ (assuming convexity of preferences, local non-satiation and WARP), giving rise to a unique line in the Edgeworth box as each of the consumers’ “budget constraint”, and hence a unique equilibrium which is the intersection of this line and the contract curve?


texts: Why are we taking the logarithm for risk-averse decision-makers?

texts:
I'm a mathematics student learning a bit of Game theory. Many examples are given within a very economic setting and up to know I could follow most of it because they were very basic and I learnt some basic economics in high school.

Now I've come across some examples where a player is risk-neutral whereas the other is risk-averse (e.g. insurance company vs. customer). Say we have outcomes $(A_i)_{i \in I}$ which occur with probabilities $(p_i)_{i \in I}$, and they have payoffs $(w_i)_{i \in I}$. It seems the expected payoff for risk-neutral players is simply

$$\sum_{i \in I} p_i w_i$$

whereas for risk-averse player we apply the natural logarithm and end up with

$$\sum_{i \in I} p_i \log w_i.$$

In the lecture notes I am reading, I have found no justification for this and I assume it is covered in other lectures in the standard curriculum of any economics student.

Question 1: Why are we taking the logarithm? (mathematically and economically)

Question 2: Are there more "measures" of risk-attitude? If so, how does the expected payoff change?


texts: What are some good video lectures on DSGE modeling?

texts: Are there any online resources on Dynamic Stochastic General Equilibrium models supplied with video lectures, which include theory and some practical examples of fitting models as well? I did not find anything like that in Google, but maybe there are some records from PhD courses or summer schools, which are hopefully available online?


texts: eBay economics - total revenue impact from expanding ecosystem by 1 seller

texts:
While I think my question is straight forward, I'm guessing the answer to it is anything but.  Thanks in advance for any insight you may be able to offer, even if it's just a directional assist.  Here's the question.

What is the impact on total revenue when eBay has 1 additional seller join its ecosystem with X dollars in product inventory?  How does this differ in the short vs. long term?

Acknowledgements, thoughts, and considerations:

The type of product the seller carries, number of bidders (buyers), and their respective bidder budgets all certainly play a factor in calculating the additional sellers impact on revenue.  Feel free to consider the question with the seller selling "average" product, constant bidder budgets, and number of bidders before and after the seller joins. In short, please feel free to simplify these (and any other) assumptions.
Seasonality should play a factor in the short term.  If the seller were to join in December, the impact would be different than if that same seller with the same X dollars in product joins in May.  In the long term, this shouldn't matter.
Playing with some supply and demand curves on paper tells me that the steepness/slope of the curves has a dramatic impact on the expected total revenue when multiplying P2 and Q2.  The revenue could be incremental to the existing revenue, decrease it, or keep it flat depending on these slopes.

Again, any light you can shine on the above would be greatly appreciated.  In case you're up for it, please find a final follow-up question below.

Say the X dollars in product inventory were 5% of the total pre-existing available eBay inventory.  If we increase X to represent 10% of total pre-existing available eBay inventory, how would that change its impact on total revenue?


texts: Algorithms/Models to solve minimal Matchings for consumer producer household pairs

texts:
I’m working on the following problem:
Minimising the electricity price for household trading pairs. There’s producer and consumer households. Trades are just possible between producers and consumers.
Producer households have a supply I’ll call Si.
Consumer households have a demand I’ll call Di.
For each household-pair (Pi,Cj) there is a different trading price which I call:
P(Ci,Cj)
Where: Ci = consumer
Pi = producer
ATM I’m looking at the problem as a bipartite graph where nodes are households and edges is the price for a trade in between those households.
I think I could solve it with network simplex method interpreting the problem as a transport model.
How would you guys solve it?
Is there any faster/better ways to solve the problem?
I would really appreciate some new ideas.
Tanks in advance.


texts:
Consider the following scenario:

A consumer with CARA (constant absolute risk aversion) claims that she is indifferent between "getting ＄2400 for sure" and "getting ＄5000 or ＄0, each with 50% possibility".

I know that a consumer has CARA if and only if the vNM utility function is an affine transformation of $-e^{-\lambda x}$, where $x$ is the prize of the gamble. I was wondering how I could solve for the coefficient $\lambda$, given the above scenario.

To do so I wrote down the following equation:

$e^{-2400\lambda}=\frac{1}{2}e^{-5000\lambda}+\frac{1}{2}e^{-0\lambda}$

It is clear that $\lambda=0$ should be a solution to it. However, I found that this could not be the case, as $\lambda=0$ means risk neutral, which is controversial with the consumer's claim.

What should be the correct way of solving it? I think I must have made some stupid mistakes here but I couldn't figure it out.

(For reference, this is actually Problem 6.2 in Kreps' textbook - any suggestion or hint would be much appreciated.)


texts:
A colleague in work mentioned today that Chile is keeping a flat monetary policy rate given "there is a higher expected fiscal deficit".
If there is an expected fiscal deficit (i.e., spending more than what you earn), why would you keep the monetary policy rate low (i.e., lend money cheaper). To me it sounds a little contradictory, but wanted to hear other views.
Is there another reasoning why you would keep a low flat monetary policity rate if there is an expected increase in the fiscal deficit?


texts: Derive the demand functions: Hotelling-style Model

texts:
So I have this economics question that I have been trying for a while now and I can't seem to get the answer correctly. Below is the question and after I will show what I have so far. An explanation would help so much.

  Consider the following Hotelling-style model. There are 3 Arms, each offering a single type of milk (always in 1 quart containers) that is horizontally differentiated along a single dimension, the percent of fat.

  Firm-1 offers non-fat milk.

  Firm-2 offers low fat milk, with 10% fat.

  Firm-3 offers high fat milk, with 50% fat.

  There are 1,000 potential consumers. Some consumers hate fat and some love it. But the most fat any individual consumer would ideally have in their milk is 50%. In particular, assume that people's tastes for the ideal percent of fat is uniformly distributed from 0% to 50%. That is, the line starts at zero and goes to 50 (instead of 1 as we have done in the past).

  The utility that individual i obtains from purchasing a quart of milk from seller j is given by

  Uij = 5 - pj - 1/10*|Xi - Xj|

  Where Xi € [0,50] is individual i's ideal fat content and Xj € [0,50] is the fat content offered by firm j.

  For example, if a consumer is located at Xi = 2 were to purchase from firm 2, and firm 2 happened to set a price P2 = 3, they would obtain utility:

  Uij =5 - 3 - 1/10*|2 - 10| = 1.2

  Derive the demand functions for each of the three firms.

So far I have been able to derive the demand function for firm 1 by first solving for Xi for the indifferent consumer between Firm 1 and Firm 2.

The line looks like this

  |--x--|-------------|

with the first line representing 0% fat, second 10%, and third 50%. The x represents the indifferent consumer between firm 1 and firm 2.

The math for the first firm is done by taking the Utility of the Indifferent consumer for firm 1 and setting it equal to the utility of the indifferent consumer for firm 2.

  5-P1-1/10*|Xi-0|=5-P2-1/10*|Xi-10|

by doing this, you end up with

  Xi=5P2-5P1+5 with the Q1=(Xi-0)*1000/50

Therefore the demand curve for firm 1 is

  Q1=100P2-100P1-100

The next step would be to be to solve for the demand curve for firm 3. My problem is when I set U2=U3 the Xis cancel. The math is below.

  5-P2-1/10*|Xi-10|=5-P3-1/10*|Xi-50|

This reduces to:

  -P2-1+Xi/10 =-P3-5+Xi/10

Finally this reduces to:

  -P2+P3+4=0

The "Xi/10" on both sides cancel which does not make sense. Because of this result, I have no idea how to solve for the demand curve of Firm 3.


texts: if all income is spent on consumption how will it change or affect the economy

texts: Imagine all incomes being spent on consumption would such a system be in a position of no change.


texts: My question relates to calculation total debt as percent of GDP (quarterly). Since debt is a stock and GDP is a flow, I can understand calculation it on an annual basis but not quarterly.


texts: Can the CPIH be used to find the real terms rise in price of a component of the basket of goods?

texts:
I want to calculate the real terms rise in UK private rent prices since 2011 using the CPIH measure. The indexes of nominal rent prices and the CPIH rose by 14.7% and 13.5% respectively, so I can say rent prices rose by 1.2% more than inflation did.

But do I need to account for the fact that rent prices are a component in the basket of goods used to calculate CPIH? It seems circular to say 'Rents didn't rise that much faster than the CPIH' if the CPIH would have risen by less without rents being included. Is that worry correct? If so, how do economists adjust for it? Many thanks

Edit: Note this question doesn't actually have anything to do with rent/ housing prices. It's about how to measure the real times rise in the price of any item that is part of the basket of goods used to calculate the CPIH.


texts: What is the characteristics of economic downturn and which countries experience economic downturn from 2010 to 2018?

texts: I would like to know the characteristics of economic downturn. Is downturn the same as recession? and which countries experience economic downturn from 2010 to 2018?


texts: What do they mean by “bottom line” and why did US IRS turned back 810 millions to IBM? and what do they mean by “unspecified “ layoffs?

texts:
In the quarter ended in March, IBM’s revenues rose by 5.1 percent to \$19.1 billion, and its gross profits were up by 6.1 percent to \$8.25 billion. There were a whole bunch of things that affected the bottom line in the quarter, including a settlement of two audits by the US Internal Revenue Service that gave it back \$810 million, but IBM then took \$610 million in restructuring charges for unspecified layoffs. The company also took some charges – IBM’s chief financial officer, Jim Cavanaugh, did not say how much – that pushed its overall systems business into the red ink.

Why did US IRS gave 810 to IBM? and what do they mean by saying bottom line?


texts: Homothetic preferences and utility functions

texts: I know that if you have homothetic preferences and a utility function that represents it, then this utility function must present constant Marginal Rate of Substitution (MRS). My question is whether the opposite direction of implication is also true, to be very specific, is it true that a utility function that presets constant MRS always represents a homothetic preference?


texts: What is the actual amount of money lost to corporate tax evasion and avoidance in the UK?

texts:
I find this topic confusing, because there are so many figures out there from seemingly credible sources. You hear politicians using figures to either attack current policy or defend it. Many people disagree with the governments own figures.

So I would like to know, without any of the politics, what is the actual, or closest to actual figure of how much money is lost through corporate tax evasion and avoidance in the UK?

Please cite sources and if you can; reasons why the figure you provide is correct or as close to correct as possible.


texts: How to interprete independence between treatment indicator and outcomes?

texts:
In Woodridge's textbook "Econometric Analysis of Cross Section and Panel Data", page 907, it says

  ...the treatment indicator $w$ is statistically independent of ($y_0$, $y_1$), as would occur when treatment is randomized across agents.

In which $w$ would be 1 if the subject receive a treatment; $y_0$ is the outcome without treatment; $y_1$ is the outcome with treatment.

I found the statement a bit strange since this would mean that, e.g. in the case of double-blind experiment involving giving one group of patients placebo and the other group of patient real medication (i.e. randomized across agents), giving real medication or not is independent of the outcome of the patients taking the real medication and the outcome of the patients not taking the real medication (i.e. the real medication is assumed to have no effect if the agents is randomized, which does not make sense).

Furthermore, the book showed that when treatment is randomized, $E(y|w=1)=E(y_1|w=1) =E(y_1)$. However, it seems that randomizing treatment is not essential for this equation to be established as long as $y=(1-w)y_0+wy_1$ (showed on p. 906 at the buttom). What is the difference between $E(y|w=1)$ and $E(y_1)$? They seems to be the same (expected outcome with treatment). In what circumstance would $E(y|w=1)=E(y_1|w=1) =E(y_1)$ be not satisfied?

Or is there something wrong with my interpretation?


texts: Did a similar property boom take place in another country or throughout history like we have seen in London? If so how did it effect the economy?

texts:
The London property market has seen a sharp increase in the average house price. If we go back to the 70's the average UK and average London price were almost the same, however since than the gap has increased quite dramatically. The average property in London is +£400k, whereas in the UK this is almost half.

How long prices will increase till the bubble will burst? Some say property prices tend to double every 8 years, if that's the case then in few years time the average price will be £800k, however this is not a fair balance compared to the average salary in London. My question whether the world has seen a similar property boom like in London (throughout history) where there is an imbalance of property prices & income, prices shooting up to such an extend that they become unattractive/ unaffordable? If so it would be nice if you could provide some reference as I am interested to study this into more detail and understand what the effects were of such highly priced market and how the economy responded?


texts: Puzzle: Fairness of consumer price indices

texts:
I have learned a bit how the consumer price index (= inflation rate) in Germany is calculated.

It's a complex process, which takes into account a lot of measured values (mainly specific prices for specific goods along specific distribution channels) and complex weightings (taking into account the volume of distribution channels). At some point in the process, when consumer price indices of Germany's federated states have been calculated, a weighted average consumer price index is calculated for Germany as a whole.

As I have learned, the weight by which a federated state enters the Germany-wide average index used to be proportional to its population (until approx. 2002-2005, Gerhard Schröder's reign?, I did not verify), but since then it's the "market volume", i.e. the total amount of money spent by households in the state. (I don't know the correct technical term.)

This may make sense from an macroeconomical or monetary/fiscal perspective, but it feels somehow "unjust". In the long run it might be to the benefit of all (even the poorer states with lesser market volume), but how do I know, and at first sight it seems "unfair" in the sense of "one man, one vote".

So I wonder, if there are good arguments that this way of calculating the Germany-wide consumer price index is "fair" and to the same benefit for all, or if – in the long run – it privileges the richer (or maybe the poorer) states?

  For a layman like me, this question is not easy to answer. It strongly
  depends on how the officially calculated and reported consumer price
  index (= inflation rate) affects (by very different measures) the
  overall but also the regionally distributed wealth of a state or
  nation.

What I don't know (and didn't try to find out) is how the harmonized index of consumer prices for the whole EU takes the single EU-members into account: by population or by market volume? My same questions would hold on this higher level, too.


texts: What institutions are examples of "shadow banking"?

texts: I often hear the term shadow banking tossed around when discussing the United States and Chinese economies. What exactly is shadow banking and could you give examples of some specific companies that act as "shadow banks"? I have been told that in China, shadow banking refers to informal loans that are not written up in any documentation. Is this correct?


texts: Difference between long run coefficient and non stochastic steady state coefficient ARDL model

texts:
I am a little bit confused on the definition of long run equilibrium coefficient. Suppose I have an ARDL model as:
$y_t = \rho_1 y_{t-1} + \rho_2 y_{t-2} + \beta_1x_{t-1} + \beta_2x_{t-2} $
The steady state non stochastic solution is:
$y=\frac{ \beta_1  +  \beta_2 }{1- \rho_1 -\rho_2}x$
What is the definition of long run equilibrium coefficient for $x$ here? Is it defined as the coefficient of the steady state non stochastic solution $\frac{ \beta_1  +  \beta_2 }{1- \rho_1 -\rho_2}$? What is the difference between the two concepts?


texts: How does fuel tankering save airlines money

texts:
The aviation industry practice of fuel-tankering has been in the news recently. As the BBC describes it: "planes are filled with extra fuel, usually to avoid paying higher prices for refuelling at destination airports". The weight of the extra fuel can significantly increase the fuel consumption and emissions of the planes.

How can this be cost effective? This seems to be essentially air-freighting fuel to the destination, but I thought air freight was only cost effective for goods that are perishable or are required with a low lead time, neither of which seem to apply to aviation fuel.


texts:
In a bi-weekly payroll cycle, there are only ever 26 pay dates, correct?  It never jumps to 27 or falls to 25?

I'm asking this question in a leap year, and I know that calculating the first pay date has to do with selecting a day of the week to run payroll on, and then selecting the first occurrence of that day in the year.


texts: Due-diligence behind discount window lending

texts:
Its clear the Federal reserve is doing risk assessments at the discount window since they separate credit into primary and secondary.
I'm curious how secondary credit risk is handled. Given that insolvent banks should generally be allowed to fail, do they make solvency a (loose?) criteria for secondary credit? Or do they give out secondary credit easily and use collateral to mitigate risk?


texts: How to explain negative correlation between quantity sold and expenditure on advertisement?

texts:
I have received the following dataset from our economics Professor. It has 15 observations and 4 variables - 'qsold' (quantity sold of product X), psn (price of X), pcb (price of a substitute product Y), adv (expenditure on advertising of X). I am supposed to derive a demand function (qsold = B0 + B1 (psn) + B2 (pcb) + B3 (adv)). Now theoretically, all three independent variables are supposed to have a relationship with qsold, however, I am supposed to explore only linear relationship, so, I tried to fit the following model.
df1
qsold   psn pcb adv
1183    1361.97 1405.78 3.22
974 1520.49 1369.17 3.39
1179    1361.43 1448.71 4.03
1258    1159.67 1465.12 3.91
1161    1297.74 1383.93 3.46
1052    1362.44 1450    3.64
992 1447.25 1404.4  3.55
1213    1316.93 1418.03 3.81
1133    1365.97 1391.95 4.21
1001    1283.92 1403.11 4.22
1221    1329.34 1428.9  3.38
1137    1278.41 1426.81 3.89
1112    1466.21 1442.68 3.65
1025    1355.73 1359.79 4.25
1277    1377.06 1455.03 3.35

lm(formula = qsold ~ psn + pcb + adv, data = df1)

Residuals:
    Min      1Q  Median      3Q     Max
-118.47  -31.59   12.42   39.46   92.43

Coefficients:
             Estimate Std. Error t value Pr(>|t|)
(Intercept)  635.4451  1240.7873   0.512   0.6187
psn           -0.5897     0.2647  -2.228   0.0477 *
pcb            1.1835     0.6650   1.780   0.1027
adv         -103.7231    62.7722  -1.652   0.1267
---
Signif. codes:
0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 72.57 on 11 degrees of freedom
Multiple R-squared:  0.5764,    Adjusted R-squared:  0.4609
F-statistic:  4.99 on 3 and 11 DF,  p-value: 0.02004

In the output above, only psn is significant (based on t stats). Our Professor told us that we should consider only significant coefficients in the demand function. I am finding it difficult to agree with. In this case, if I consider only psn in my demand function, I am perhaps violating the null hypothesis, which is based on F stats (that all coefficients are 0). Also, if I consider only psn I am essentially negating the combined effect of all three variables, and basically choosing a different model that what I fitted.

adv has a negative coefficient, which is against my theoretical understanding. As I have read that it has a positive correlation with the quantity demanded. How can I explain this relationship?

If possible please cite literature, which I can refer. Also, please note collecting data for other variables, increasing sample size, or fitting non-linear models is not a possibility.


texts: difference between health care services and typical goods and services

texts: Why is the market for health care services is substantially different than the market for typical goods and services


texts: Is there unnecessary duplication for borrowing in this circular flow of income diagram?

texts:
Here is a circular flow of income that I took from Krugman's macroenomics textbook.

We can see that when firms want to borrow they can go to the financial sector and borrow savings of national and foreign households. BUT, it seems like there is also another way for firms to borrow money: the factor market. Capital is a factor of production. And there are different kinds of capital, in our case we're interested in financial capital, specifically in financial capital that is basically a pile of money. And how can we, sort of, buy such financial capital? By borrowing it! So firms "buy" financial capital from households and then pay them interest (you can see that interest is paid to households from the diagram).

I don't get the purpose of this duplication. Why use financial sector for borrowing when we have the factor market? Or why use the factor market for borrowing when we have the financial sector? Is there some kind of important difference between them that makes both of them necessary in borrowing? Or did I make a mistake in my reasonings and firms can't get borrow money from the factor market? If yes, then why do households get paid interest from the factor market?


texts: Foreign exchange reserves in the government's budget constraint

texts:
The following is an excerpt from Montiel's Macroeconomics in Emerging Markets (1st edition):

B: Privately owned bonds

DC: Government bonds held by the central bank

sB*: Bonds held by foreigners, valued in foreign currency

P(G - T): Primary deficit

i: Interest rate for privately owned bonds

i': Interest rate for bonds held by foreigners

sR*: Foreign reserves, valued in foreign currency

Δ: Variation

Foreign reserves are held by the central bank, not by the treasury. Then, why do variations in foreign reserves affect the government's budget constraint?


texts: Piracy/File sharing - Why aren't songs, movies or ebooks given for free (+ads) like TV?

texts:
Update: I have spent 750 reputation points for bounties on this 6 year old question, and it looks like ONLY NOW this question might be closed. LOL. this must be such a huge guinness book of stackex records: longest duration of post or most reputations points spent for bounties (or both) on question that is supposed to be closed before question is actually closed.

Question: Why aren't songs, movies or ebooks given for free (+ads) like TV?

i. Sub-question: Every minute, people are pirating and there is no stopping that. If people see 0.99 for a song on iTunes and 0.00 for a song on a torrent site, I don't see anything stopping majority of people from going to that torrent site in the same way I don't see anything stopping them from going to a library or asking a friend to borrow a book instead of buying the book in Borders or taping a song off the radio. In particular, there's betamax. It was thought illegal until this case or something.

(Anyway that's about legality not economic benefit/loss. Also betamax is more like is or positive rather than should or normative, I guess.)

So, why don't companies, like the RIAA or MPAA, release their songs, movies or ebooks for free but put in ads kind of like how cable TV was/is done? In my opinion, companies incur a huge opportunity cost

eg 'JK Rowling has lost millions of dollars, because she refused to let Harry Potter come out in ebook form. Newsflash: you can get ebooks of all the Potter books from pirate sites. She didn't cater to her fans, so her fans catered to themselves.'.

ii. Sub-question: What I guess is that they think they can actually stop piracy with things like DRM or scaring people into believing that they will be caught even though such is unlikely so as to keep making money on iTunes, Netflix or whatever.

However, I read that in a documentary, Chairman and CEO of the Motion Picture Association of America (MPAA) Glickman 'concedes that piracy will never be stopped, but states that they will try to make it as difficult and tedious as possible.'

So he ADMITS piracy cannot be stopped, which makes my guess wrong. So what, are the RIAA and MPAA actually irrational?

Question: What are some economic concepts or theories involved in file sharing/piracy besides opportunity cost and free rider problem?

Notes:

This can also extend to games, apps, etc.

To clarify, I don't mean to ask why songs, movies and ebooks are not given ONLY for free. They should continue to be given for payment since there will still be demand. If people want to buy CDs, DVDs or ebooks, attend concerts or go to cinema before songs, movies and ebooks would be given free, they would likely not want to do less if ever songs, movies and ebooks would be given free, I think because it seems that if people like the cinema or concert experience, don't have Internet access or like smelling books, they will continue to purchase as much.

My question is not 'Why do people go to netflix instead of torrent?', a question focused on the consumers given the law and the companies' decisions. My question is instead 'Why aren't songs, movies or ebooks given for free?', a question focused on the law and the companies' decisions given, well:

Pirate Coelho's 'Sharing is part of the human condition. A person who does not share is not only selfish, but bitter and alone.'

Btw I just discovered artificial scarcity.

Edit: in re my badge, thanks for the upvotes everyone! This is so weird that this has only 3 downvotes. I could've sworn this was at 0 score sometime in the past year or so with like at least 10 downvotes. I got a lot of 'user was removed' in notifications recently, so maybe that's relevant.


texts: How central banks "create" negative interest rates?

texts: How can the Fed push Fed Funds rate to negative? I think I understand how it works with >= 0 -- they just lend reserves for bonds until they hit their targets, but what about <0? Has this something to do with purchasing bonds until their yield becomes negative, making banks which hold bonds as cash to have negative interest on them?


texts: Is perfectly inelastic demand always coupled with inelastic supply?

texts: In the case of perfectly inelastic demand, the price is always infinite. Does it mean that the supply curve is also inelastic?


texts: Why is it so hard to understand NCO = NE?

texts:
A lot of explanations about this matter depend on the fact that the foreign cash could be seen as a foreign assets. They say like "if you export a car and earn 100 yen, then it means that you have now the Japanese assets which are worth \$1 (suppose the exchange rate is 0.01) and this means $1 is invested into those yen money, so this implicitly alludes that the one dollar is flowed outward into Japan.

Okay, I get this so far. But what if I exchange the yen money with dollar at the Japanese bank before I come back to the US? I can see that clearly when I guess at the Japanese side. They got their yen money back into their money market, and it means the supply has been increased. But when I think about this from the view point of US side, well, I just don't get it at all. I went to Japan, sold a product, received yen, exchanged into dollar, and came back; The only things have come back to US are I and the dollar I earned. How can you see this as a dollar outflow?

Or what if I export the car to Zimbabwe where they use US dollar as an official money now? Exporting a car and earning nothing but 1 US dollar, then how come this is the outflow?


texts: How is bartering (goods for goods) conceptually related to trading (goods for money) and monetary (money for money) exchange?

texts:
My terminology may be off on this one but I can't get a definitive answer on how the above are related. To me, it seems like bartering is a superset of trading which is itself a superset of monetary exchange.

The goal of every individual using money is to acquire things of value. Money is the means of acquiring valuables but of no value in themselves. Money indicates that at some point in time I produced, acquired, discovered etc something of value which became my possession but I later gave up receiving a numeric representation, which I deemed to accurately represent my possessions value at the time. I now have the "value" but not the valuable (effectively storing it for later use or subdivision).

Bartering is the exchange of something of value for something else of value (the ultimate goal).

Trading is the exchange of a valuable for a (perceived) representation of its value.

Monetary exchange is the exchange of two tokens of value accepted in different regions (or by different organizations, countries etc...)

It appears to me that the purpose of any exchange is ultimately between things of value (bartering), on top of which has been added an additional layer of abstraction (money) in order to have a constant (and consequently always desirable "something" for which to make an exchange) and abstracting the trade even further is to make an exchange between mediums of exchange.

Yet, most sources I view, trading is distinguished from bartering as bartering is an exchange between valuables but money is a medium of exchange.
Is my assumption of a direct hierarchical link between the three forms of exchange correct?


texts: Probably a silly question, but I just have to make sure. I am wondering whether it is acceptable to use the solow / solow-swan growth model to model the growth of firm instead of growth of an economy?


texts: How do I use a monopsony (product market) graph to show that a firm has more buying power over a supplier?

texts: For instance, Tesco has more buying power over British farmers. How would I show this on a monopsony graph where Tesco has a surplus?


texts: What is the calculable effect of counterfeiting on an economy?

texts:
I'm curious whether one can numerically calculate the effect that counterfeiting has on an economy.

As I understand it, counterfeiting essentially amounts to theft of the wealth of everybody holding units of that currency. For example, say you have an economy with 100 units of currency currently circulating. Bob creates 100 fake units of currency. If he does nothing but leave them in his safe, then the economy is unaffected. However, if he spends all of them, he will get goods and services in exchange for nothing of value. This is the theft. Him introducing his 100 fake units into the economy doubles the money supply, which will eventually more or less lead to a doubling in the price of everything (but not necessarily).

So now, if Dave had 10 units of currency his purchasing power was X. However, after the counterfeiting and doubling of the money supply and thus more or less doubling of prices, his purchasing power is X/2. Likewise for anybody who was holding that currency.

So, is it correct to say that in an economy with X currency units, counterfeiting and spending Y fake units is equal to theft of Y/(X+Y) of the wealth of the economy?

e.g. Given 100 legit units and counterfeiting and spending 200 units, 2/3rds of the wealth was stolen?

If not then what is the effect?


texts: How can I compare degree of stability (or persistency) in two dynamic systems/models?

texts: Let's say I have two dynamic VAR models for two countries. What is the best way to compare persistency or degree of stability in the two models. Use eigenvalues of the two systems?


texts: Papers about doing development projects by government funding

texts: I want to read some papers about negative and positive aspects of doing a lot of development projects by government funding from the viewpoint of macroeconomics. However, I can't find anything by searching in google. Can you suggest some papers or a way for finding some papers in this topic?


texts:
I'm coming from a math background (so my mind is set up for Definitions-Observation-Lemma-Proof frameworks) and looking for recommendations of a Macroeconomics textbook mainly devoted to growth models and foreign exchange rates.

Any recommendations?


texts: I want to get past daily charts for stocks I'm looking at but I can't seem to find any websites that display this real-time data. The daily high, low, close, and open isn’t enough information to suit my needs.


texts: Computational Bayesian Statistics and Economics

texts:
What is there that links computational Bayesian statistics and Economics(preferably macro)?
I'm looking for a primer or gentle introduction on the matter. It doesn't need to go into much detail.

Any help would be appreciated.


texts:
I am watching Lecture 3 of Yale's Financial Theory Lecture (by John). At about minute 50 he explains something along this line (with reference to log utility functions).

MUx/Px=MUy/Py

And simplifies down to: 0.75/Px(x)= 0.25/Py(y)

Given that Px(x)+Py(y)=Total Money

He concludes that "The total spent on x relative to 3/4 is equal to the total spent on y relative to 1/4" and therefore a consumer would spend 3/4 of their income on x and 1/4 on y.

How is he drawing that conclusion from the above equations?


texts: In the context of banking, how (if at all) do the terms 'capital', 'net worth', and 'equity' differ?

texts:
In banking, are the three terms capital, net worth, and equity simply identical and exact synonyms?

If not, how do they differ?

(Aside: And what about in other contexts? For example, does the same hold more generally in corporate finance? What about in economics in general? I believe in economics, capital is usually used to refer to something quite different.)


texts: Measuring productivity with the Törnqvist index

texts:
I have a sample of companies, of which I want to calculate the productivity of each individual firm relative to a hypothetical firm in the industry.

Choosing the measurement method was not easy, but I ended up using the Törnqvist index number approach. I am aware of the assumptions of the method and the difficulties in measuring productivity. My questions therefore relate to the actual calculation of the index. Although the formula seems straight-forward, I experience some problems when calculating it.

The basic formula is given below:
$$ \ln A_{it}^{IN} - \overline{\ln A_{t}^{IN}}  = \left(  \ln Q_{it} - \overline{\ln Q_{t}} - \tilde{s}_{it} \left(\ln L_{it} - \overline{\ln L_{t}} \right) \right)  - ( 1-\tilde{s}_{it}) \left(\ln K_{it} - \overline{\ln K_t} \right)$$

$$ \tilde{s}_{it} = \left(s_{it}^L + \overline{s_t^L} \right) / 2$$

This is how I defined the variables:
1. Q is the output of the firm. I defined it as sales or revenue. I know its shortcomings, but given the data I cannot make extensive corrections. Based this on research of Melitz (2000).
2. L is the labour productivity, which I defined as the total hours worked. According to Ahmad et al. (2003) this is the best proxy.
3. K is the physical capital, which I defined as Plant, machinery and equipment. Excluding buildings and land (Land should not be included, while buildings should, but I don't have information separately).

Please note that the data I have is limited for each company. I have a sample of companies of which I can access global lines from the income statement and balance sheet. I therefore have to make a trade-off between the size of the sample (more and detailed data means a smaller sample) and the quality of the proxy for productivity.

Problems

First of all, to calculate the productivity of a specific firm, I first have to calculate the productivity of the hypothetical firm (the geometric mean of the industry), but how do I need to do this? The formula says on the left I need the productivity of the hypothetical firm in order to find the firm-specific productivity. Or do I just need to calculate the geometric mean of my variables for each industry and omit the second term of the left part of the formula? I am confused because I would need to calculate the productivity of the hypothetical firm but how? The first one is always needed for the calculation of the second one and vice versa.

Second, for the calculation of the term ~s, I calculate the share of labour in the total input. But as I said before I calculate labour using total hours worked and capital using balance sheet lines (in €euro). These two are therefore measured in different units. I should multiply the hours worked with an average base wage to get the labour in monetary units. It is therefore better to just use total employment costs, right? I can find this cost in the income statements.

Third, I have a question related to determining capital. This should reflect all physical assets used in production. So should I include leasing (on the balance sheet). As of know I only include plant, machinery and equipment.


texts: What does this phrase about economics mean [Lionel Robbins]?

texts:
Lionel Robbins once said, "Economics is the study of scarce resources which have alternative uses."

Would someone mind explaining what he meant by this?
I, as a naive 14 yr. old, think about this economics quote as meaning 'a person studying how to use scarce resources in any context and those resources have many uses'. e.g. It is cold outside and I don't have enough money to buy gloves, but I do have an extra pair of socks, thus I use socks as gloves.

If you cannot understand this, please let me know and I will clear it up!
 Thanks for your time -


texts: What are some of the economic arguments for gender-neutral marriage?

texts:
What are some of the economic arguments for same-sex or gender-neutral marriage (GNM)?

Which arguments have merit, don't have merit or have yet to be decided/tested?

For example, it is hypothesized that 'Legalising gay marriage could give the economy a \$1 billion boost', at least in Australia. Also, apparently, 'Gay marriage boosts NYC's economy by $259 million in first year'. Will such benefits hold elsewhere?


texts:
Recently I read Bertrand Russell's Political Ideals (1917). Although he expresses strong left-wing ideals there, he supports free trade and criticizes protectionism.

It seems that not any left-wing theorist agrees with Russell on this. As an example, I quote from A Darwinian Left (1999) by Peter Singer:

  What capitalists failed to accomplish by a century of repressive measures against trade union leaders, the World Trade Organization... is doing for them. When barriers to imports are removed, nationally based trade unions are undermined. Now when workers in high-wage countries demand better conditions, the bosses can threaten to close the factory and import the goods from China, or some other country where wages are low and trade unionists will not cause trouble.

Now, I know that there may be different opinions on this and that's the nature of a complex subject like economics. However, I can't resist the desire to know what serious students and scholars of economics think of this argument by Singer.


texts: Solutions for the de-dollarization of the Democratic Republic of Congo

texts:
While reading this article, I was wondering about the policies the DRC's government could employ to make the congolese franc appreciate. To appreciate the currency, the DRC by decreased investment in the mining sector which decreased the supply of the currency -> Appreciation. On the other hand, the decrease in investment caused inflation to happen, countering the original beneficial effects of this policy.

My question is: what would the implications be if the DRC simply pegged its value to the dollar or revalued it? Why hasn't it done that?- there must be reasons...

I am learning high-school economics so pardon my limited knowledge.

I look forward to your answers!


texts: Demand curve for items where consumers typically only buy a single product

texts:
This question began with rental housing (most people do not rent multiple apartments).

The demand for apartment units in any given period is limited to the number of people searching for units (not all searchers must match with a unit in each period--assuming that most begin searching while their current lease is active).  Supply in the rental market is also fixed in the short term.

I expect that using the normal axes (x: Q, y: P) there would be a kink with a vertical line to the X-axis at the lesser of A) the units available B) the number of searchers.  At a certain price all of the searchers/units are matched. Is this correct?

Is there a different unit to use on the X-axis other than quantity (count) when consumer typically only purchase 1x of an item?


texts:
I'm trying to do some research on unemployment and labor participation rate in the US to figure out what people are talking about.

For instance, the Civilian Labor Force Participation Rate for Sept 2016 is 62.9% (FRED 1). My attempt to control for retirement would be to look at the 25-54 age group series, which puts the labor participation rate at 81.7% (18.3% unparticipation) (FRED 2), but I'm guessing there a number of things wrong with that approach. The Bureau of Labor Statistics says the U-6 unemployment is

  Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force

and gives the Oct 2016 number as 9.5% (BLS 1). This sounds like an all-inclusive definition, or what people "really" mean when they talk about unemployment, but that differs from the 25-54 labor participation rate by quite a bit (9.5% vs 18.3%).

Question

In what way is the labor participation rate useful for tracking unemployment? It seems there are a large number of people included in labor participation that shouldn't be included when trying to measure unemployment, for example, the number of people retired and choosing not to work.

(side question: is there a number of people retired series on FRED? I'm not seeing one...)


texts: Conforming mortgage loan limits by county and year

texts:
US law restricts the Government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac to purchase only those residential mortgages smaller (by origination balance) than a limit, the "conforming loan limit". This limit is generally speaking fixed by the number of units in the residence and the year of origination (or purchase by the GSE). For example in 2015:

However, in some counties, where the median sale price of homes is high enough the limit is set higher and these are known as high cost counties. Additionally, limits are higher for Alaska, Hawaii, Virgin Islands (since 1992) and Guam (since 2001). The "jumbo conforming loan limit" for 2015 was:

Loans above these limits are known as "jumbo loans".

I would like to classify particular mortgages where I know the state, county, the year, the number of units, and the loan amount into conforming, jumbo conforming, and jumbo loans. Is there a cross-walk using this data available? If so, where might I find it?

For some years, like 2015, this is straightforward, just download the files from the FHFA website. But that site only has years 2008 - 2014. Unfortunately, conforming loan limits have existed since 1970 when Fannie Mae was authorized to purchase residential mortgage loans. And many of the important mortgage data sets go back long before 2008 including LPS, HMDA, and Corelogic. As such, I need a much longer time series for these limits.

In case this feels like a pure data request and not economics, please note that these limits are used in numerous economics and finance papers. To name a few:

The impact of the agencies on conventional fixed-rate mortgage
yields
The Interest Rate Elasticity of Mortgage Demand: Evidence from
Bunching at the Conforming Loan Limit
The Effect of Conforming Loan Status on Mortgage Yield Spreads: A
Loan Level Analysis
Does Regulatory Capital Arbitrage, Reputation, or Asymmetric
Information Drive Securitization?

and many more.


texts: Neoclassical model with proportional taxes

texts:
In a certain economy, time is discrete with periods $t=0,1,2,...$. The economy is populated by many households and identical firms. The utility of a household is:

$\displaystyle\sum^{\infty}_{t=0}\beta^t\Big(\log c_t - \gamma L_t^{\frac{1}{\gamma}}\Big)$

where $c_t$ is consumption and $L_t$ is labor in hours worked. There are two assets: capital, $K_t$, and a one-period risk-free bond $b_t$.

Capital is rented to the firms at a rate $v_t$. The law of motion for capital is $K_{t+1}=(1-\delta)K_t+I_T$. $I_t$ is gross investment and $I_t-\delta K_t$ is net investment.

The bond, is in zero net supply and yields $r_t$ per period.

Firms are owned by households and produce output $Y_t^p=K_t^{\alpha}L_t^{1-\alpha}$ where $0<\alpha<1$. Wages are $w_t$.

The government has a sequence of public spending $\{G_t\}_{t=0}^{\infty}$ that will be paid with a combination of taxed bonds at a rate $\tau_t^b$, taxed net investment at a rate $\tau_t^I$, taxed labor income at a rate $\tau_t^w$, and taxed consumption at a rate $\tau_t^c$. The government cannot borrow or save, $Y_t=Y_t^p$.

I need to set up the firm's problem, the household's problem, and the social planner's problem but have no idea how to incorporate the tax structure.

For example, here is what I have for the household's problem, but I'm pretty sure it's not right:

$\begin{aligned}
\max_{c_t, L_t, K_{t+1}} \quad & \displaystyle\sum_{t=0}^{\infty} \beta^t (c_t, L_t)\\
\textrm{s.t.} \quad & c_t + I_t + \tau_t = Y_t = K_t^{\alpha} L_t^{1-\alpha} + G_t\\
\end{aligned}$

I'd appreciate any hints for setting up these problems.


texts:
I would really appreciate if anyone of you could guide me as to whether I my solution is right or not.

Q. Consider the following consumption function:

C=a+b(Y-T)

Assuming a>0, show using calculus that APC falls as the disposable income increases.

Also show from the answer to above that APC>MPC

My take:

MPC = dC/dy
    = b
(I have expanded the consumption function and taken derivative with respect to Y)

APC = C/Y
    = a+bY-bT/Y
    =a/Y -bt/Y + b

Now taking derivative of the APC derived above

i.e. dAPC/dY= -a/Y^2 + bt/Y^2

as it has negative sign it is < 0

Thanks.


texts:
I'm aggregating individual demand curves but the demand curves are inelastic or elastic. Say, 20 people have an elastic demand for a product at price of $2.

Another 40 people have an elastic demand for a product at price of $4. There is a third category who have an inelastic demand of 50 units.

How do I aggregate these demand curves (graphically and in equation form)?


texts: How can we measure the size of the new uber-driver-type economy?

texts: Uber has probably hundreds of thousands of drivers just in the US. There are many other gig economy firms growing quickly, not only lyft, but also Amazon Prime, bite squad, etc. Is there some place in the data that we can observe this happening? Is there a number that has been growing quickly for part time, self employed maybe? Is there a number in the Social Security statistics? More generally, how do we measure the actual size of this relative to the US labor force? Maybe we should look at the fraction of self-employed people in the US?


texts: Difference between representation of LM function in different textbooks

texts:
In Blanchard, the LM curve equation is represented in the following manner:

$$ \frac{M}{P} = L(y,r) $$
Whereas in Branson it is given as

$$ \frac{M}{P} = L(r) + k(y) $$

L(r) is speculative demand for money and k(y) is transactions demand.

How are both the representations appropriate? Can we do this for any two(or more) variable functions?


texts:
From LLN, we have $\text{plim}  Y_n=\mu$. Now you have $W_n=Y^3_n$, what is the probability limit of $W_n$?

Please help me answer this and thank you!


texts:
When is the set of rationalizable strategies not equal to the set that is left after IESDS?
My thoughts are:
I know that a rationalizable strategy is that which is a best response for Player i given what Player -i does and thus the set of rationalizable strategies would include all the strategies of player i such that each of them is a BR to any other strategy of Player-i. As such, for sure we will include in the set all of the strictly dominant strategies so if there are only strictly dominant and strictly dominated strategies the set after IESDS will result in the same as the set of rationalizable strategies.
Nevertheless, if there exists also some weakly dominant strategies, the set of rationalizable strategies will also contain this because a weakly dominant strategy is a best response to some strategy -i as it pays more in at least some case. In this sense, the set of rationalizable strategies can comprehend the result not only the IESDS but include the weakly dominant strategies and as such, be wider than the set remaining after IESDS.
I know the last is incorrect because the set of rationalizable strategies cannot be greater than the set surviving IESDS. Can someone clarify the matter?


texts: Why does the incentive compatibility constraint bind (moral hazard)?

texts:
Consider a very basic model of moral hazard with two possible effort levels $e_L<e_H$ and two possible levels of output $y_L<y_H$. If the agent doesn't participate, they get utility of $\bar{u}$. If they participate, they get $E[u(w)|e]-c(e)$ where $u'(w) > 0$, $u''(w) < 0$ and $c(e_L)<c(e_L)$. In other words, the agent is risk averse and dislikes effort. Putting in more effort raises the chance that output is high, i.e. $P(y=y_H)=p$ if $e=e_H$ and $P(y=y_H)=q$ if $e=e_L$ where $1>p>q>0$. The principal chooses a contract ${w_H, w_L}$ which specifies a wage following $y=y_H$ and $y=y_L$ respectively. Since they are risk neutral, they choose $w_H$ and $w_L$ to maximise $E[y - w]$.

Let us suppose that the principal wishes to induce $e=e_H$.

The optimal contract must satisfy an 'incentive compatibility' constraint:

$$pu(w_H)+(1-p)u(w_L)-e_H\geq qu(w_H)+(1-q)u(w_L)-e_L$$

In the optimal contract, this must hold with equality ('bind'). If I recall correctly, this has something to do with optimal risk sharing (more precisely, that the principal doesn't want to expose the agent to `unnecessary' risk). However, I would be very grateful if anyone could provide a more precise (but ideally still intuitive) explanation for why this must be the case.


texts: Why do we say the US is in debt to China?

texts: Apple import iPhones manufactured by factories in China. Apple has to pay for these Chinese manufacturers. So, Apple should be in debt with Chinese manufacturers. But why do we say the US government is in debt to China?


texts:
I learnt that if the service provided is of non-rival and non-excludable in nature, the problem of free riding occurs and the provider may not get a profit. I can understand how non-excludability results in free riding but I couldn't uderstand the effect of
  non-rivalry. In the book I read, street performance was cited as an example for non-rival and non-excludable service. The following is an excerpt from the book 'Day to day economics' by  Satish Y. Deodhar

  at a given market price, the relative buying power of different consumers might exclude some of them from buying the car or the toothpaste. In the case of the street-performing couple, this ‘excludability’ feature is missing, because they cannot prevent individuals—either physically or by charging an appropriate price—from viewing the performance. Thus, due to the non-rivalry and the non-excludability of the service which they provide, the problem of free riding occurs, and the market fails to deliver—ergo, the street performers cannot run a profitable business.

Is there any service that is rival and non-excludable? If so, how is it different from the previous case with regard to free riding?


texts:
In my problem set about ARCH models I'm given that
$\epsilon^2_{t}=\alpha\epsilon^2_{t-1}+v_{t}$
But then I'm asked to calculate
$E(\sigma^2_{t+n}|I_{t-1})$.
So is the same to calculate $E(\epsilon^2_{t+n}|I_{t-1})$, isn't it?
Thanks in advance


texts: Why does the Market Risk Premium increase in times of crisis?

texts:
My question is a bit more specific as it is indeed well known that investors expect higher returns in times of higher risks/volatility.

However, isn't it counterintuitive to expect the market to achieve higher returns when the economy is slowing down ? For example, if we have a look at the current economic situation, how could someone expect the S&P500 index (let's assume we use it as a proxy for Market Return) to perform better than it did before the coronavirus crisis ?

So, in short, how can you realistically expect higher returns when the economy is in fact crashing down ?

Thanks in advance !


texts: What are the different patterns/quantity of employment according to demands of different income ranges?

texts:
I don't really have that much knowledge on economics or anything, so perhaps that's something I'd find an answer if I just knew the adequate terminology.

Rephrasing/explaining my question: different income ranges have different propensities to expend ("versus" save), and somewhat different consumption patterns (quality of products and services).

And industries working on different quality levels also probably have different numbers of employees working on it, for the same absolute amount of money. In other words, "ten dollars" may employ less people in the cheaper food industry, than in luxury organics, and, perhaps, conversely "ten dollars" may employ more people in a "cheap towels" factory than in a "luxury towels" factory.

So, in the end, we'd have something like in general, poor people employ the less number of people per dollar invested, middle-class the most, and the richer, somewhere in between. But perhaps it would be more interesting to see that actually separated in different industries as well.

So, is that something about which there is hard data/cool graphs somewhere,  or that isn't generally a matter of concern, or yet, perhaps the answer is so obvious and easily empirically verifiable that no one really cares to elaborate on that?


texts: How do economists explain why people contribute to Wikipedia?

texts:
What incentives do contributors have?
I believe they earn no money. And usually, they earn no reputation either, because most of the contributions are anonymous.
I believe this is a public goods game. Have economists studied this "Wikipedia puzzle"? How might they explain it? To what extent would economists consider this a "puzzle"?

By "contributors", I mean those who edit Wikipedia pages, not those who contribute in other ways (e.g. donations).


texts:
This is the problem I've been given.
Assume the consumers’preference over current and future consumption is given by $U(c,c')=c^\frac{1}{2}*c'^\frac{1}{2}$.
Further assume there is no government.
1) solve for the optimal decisions: $c,c′$ and $s$ ?

This is as far as I have come

$\max U(c,c')=c^\frac{1}{2}c'^\frac{1}{2}$
s.t. $c+\frac{c'}{1+r}=y+\frac{y'}{1+r}$
$c, c',s \ge 0 $

$L=c^\frac{1}{2}*c'^\frac{1}{2}+λ(c+\frac{c'}{1+r}-y-\frac{y'}{1+r})$

(1)derv of $c$: $\frac{1}{2}c^{-\frac{1}{2}}*c'^\frac{1}{2}-λ=0 $
(2)derv of $c'$:$\frac{1}{2}c^\frac{1}{2} c'^{-\frac{1}{2}}-λ\frac{1}{1+r}=0$
(3)($λ$):$c+\frac{c'}{1+r}=y+\frac{y'}{1+r}$

Divide equation 1 by 2

$\frac{ \frac{1}{2}c^{-\frac{1}{2}}c'^\frac{1}{2}} {\frac{1}{2}c^\frac{1}{2}c'^{-\frac{1}{2}}}= \frac{λ}{\frac{λ}{1+r}}$  = $\frac{c'}{c}=1+r$

I would appreciate if someone could give some help on how to continue so I can find the optimal decisions for $c, c', s$


texts: Reductionism, value and market economics

texts:
If I'm not mistaken, the economic value provided by a business entity to the community is just one kind of value. We tend to put numbers to things such as stock price, revenue, profits and so on. However, there is an aspect of value that cannot necessarily be measured, such as benefits to a local community.

Is there any great loss when we don't take into account the non-economic factors? Has there been any good discussion in the literature on this?


texts: "For a market to exist there must be scarcity" (T/F)

texts:
The answer provided was 'true', that scarcity was necessary in the existence of a market. But isn't that not always true? For example, there's a market for canned air, and air is most definitely not scarce.

Is the statement true or false? And if true, what about in the case of canned air?


texts: Is Cobb-Douglas the only output function corresponding to a competitive economy?

texts:
Apologies if this is a rather simple question, I appreciate any guidance.

  $$ Q(K,L) = AK^\alpha L^{\beta} $$

  where A is a constant. Identify the conditions on $\alpha$ and $\beta$
  for output function Q to correspond to a competitive economy.

So a competitive economy is one where the factors of production are paid their marginal product. I am aware that the Cobb-Douglas production function alignes with this, so I would have: $ \alpha + \beta = 1$ and $\alpha, \beta > 0$.

But is this really the only and most general answer? I cannot see why we couldn't have different exponents and still pay the factors of production their marginal product.


texts: How can I model immigration and xenophobia economically using these equations?

texts:
I'm trying to put together a toy model for immigration ($I$), labor prices ($w$), and a measure of xenophobic/nationalistic sentiment ($A$). What I've come up with so far is the following:

$$\frac{dI}{dt} = -\alpha \cdot A + \beta \cdot \frac{\frac{dw}{dt}}{w}$$
The rate of change of immigration is negatively proportional to the level of xenophobia/nationalism ($A$) and positively correlated to the percentage change in price $w$ (as companies will push for higher levels of immigration as wage prices rise, e.g. more H1Bs for expensive tech labor, etc.).
$$\frac{\frac{dw}{dt}}{w} = \gamma \cdot g - \epsilon \cdot n - \eta \cdot \frac{\frac{dI}{dt}}{I},\;\; n\equiv \frac{\frac{dN}{dt}}{N}$$
The percent change in price is proportional to the growth rate of the economy
($g$) and the rates of increase in the domestic population $n$ and immigration $I$ with $\eta > \epsilon$ since foreign labor is cheaper.
$\frac{dA}{dt}$ = some function that increases linearly with $I$ up to some level $I_0$ then increases much faster before plateauing. This represents how xenophobia increases much faster after some threshold.

My questions for you that I was hoping you could help me with:

Do these simple equations make sense to you intuitively/economically? Are there any simple changes I can make to improve them?
Should I be using percent changes (like $\frac{dw}{w}$ in these models as shown above) or is that just going to be painful when I solve for values of $I$ and $w$ and $A$?
Do you have any thoughts on what function might be suitable for $A$? I was thinking of something along the lines of an augmented sigmoid but need something thats less symmetric than that. Would a piece-wise function be difficult to work with?

Thanks!


texts: Virtual valuation when the distribution is discrete

texts:
The virtual valuation  of a buyer in an auctin is a function used to calculate the expeced revenue of a seller from that buyer. When the buyer's value comes from a continuous distribution with pdf $f$ and cdf $F$, the virtual valuation is:
$$
r(v) := v - \frac{1-F(v)}{f(v)}
$$
How exactly should the virtual valuation be calculated when the distribution is discrete?

For example, suppose the valuation of a buyer can take three values: 1 USD - with probability 0.3, 2  USD - with probability 0.3, 3  USD - with probability 0.4. What exactly are $F$ and $f$ in this case?


texts:
Frisch demands are demand equations found usually in an intermediate step of the standard utility maximization problem. By example for the basic two-good case of a consumer with quasilinear preferences:
$$U(x,y)=y+\ln (x)$$

the corresponding Frisch Demand is:

$$x^f(\lambda,\text{p})=\frac{1}{1+\lambda p_x}$$

In general what are Frish demands useful for on their own? What Questions do they answer?


texts: How to choose the autocorrelation type ? MA(q)^2 or AR(1)

texts:
I have heteroskedastic and serrialy correlated (autocorrelated) panel data. I want to test it with both dynamic and static models. For the dynamic test, I use GMM and the results of GMM is parallel to results of Newey-West estimator. Newey-West estimator is OLS estimator that robust disturbances heteroscedastic and autocorrelated of type MA(q)^2. But, whenever I test the model with fixed effect regression, I find completely different results.
How can I understand what type of the autocorrelation my data has and which estimator should I use? I don't understand the differences between these estimators and below commands in terms of application.


texts: Will a Guaranteed minimum income not eventually just be crowded out by inflation?

texts: That is, if we implement a guaranteed minimum income, would inflation not eventually rise to a point where it is essentially useless? I would expect prices to be adjusted knowing people have a certain amount of money available. Any explanation would be helpful!


texts: Is optimizing revenue and expense objectives simultaneously better than optimizing profit as composite objective?

texts: In the profit maximization problem, I am curious if co-optimizing revenue and expense objectives simultaneously are better than optimizing profit (revenue - expense) as a single composite objective? I am working on a profit maximization problem where the revenue $f(x,y)$ and the expense $E(w, x,y)$ depend on $x,y$ but expense additionally is a function of cost $w$. I am looking for guidance, comments or helpful references.


texts: Simultaneity problem: use of Instrumental Variables and test

texts:
The following model jointly determines monthly child support payments and monthly visitation rights for divorced couples with children:

$$support = d_1 + g_1 visits + d_1 finc + d_1 fremarr + d_1 dist + u_1$$
$$visits = d_2 + g_2 support + d_2 mremarr + d_2 dist + u_2$$

For expository purposes, assume that children live with their mothers, so that fathers pay child support. Thus, the first equation is the father’s ‘‘reaction function’’: it describes the amount of child support paid for any given level of visitation rights and the other exogenous variables finc (father’s income), fremarr (binary indicator if father remarried), and dist (miles currently between the mother and father). Similarly, the second equation is the mother’s reaction function: it describes visitation rights for a given amount of child support; mremarr is a binary indicator for whether the mother is remarried.

a. Discuss identification of each equation.

b. How would you estimate each equation using a single-equation method?

c. How would you test for endogeneity of visits in the father’s reaction function?

I'd like to get some help with the whole question and to have my reasoning on it checked, thank you:

a)identification not possible due to simultaneity (which causes endogeneity)

b)via instrumental variable (possible choice (fremarr and mremarr) or ( dist)

c) my only idea was to estimate visits via OLS then use Hausman test between OLS and IV

Is the approach correct? How can I answer C in an alternative way?


texts: Does the concept of division of labor in matching markets work the same way as in regular markets?

texts:
According to Alvin Roth, a matching market is one where "you don't simply choose what you want, you have to also be chosen". With this in mind, I would like to pose the question about whether the concept of division of labor (in the sense of Ricardo's theory of comparative advantage) applies at all in matching markets? If so, what are the qualifications? Examples would be appreciated. (So far, I haven't been able to find any resources on the web that deal with these two concepts tied together).

P.S- I am interested more in labor and employment related matching markets. There are some papers on division of labor in the marriage market, but I'm not quite interested in that.


texts: How printed money gets to the commercial banks?

texts:
can you please clarify this for me?
Gov't need money for deficit elimination, so they issuing bonds (lets say 1T, 10 years, 2%).
Fed is buying the bonds with fresh money, so the gov't now has new 1T$ to spend.

But - I always hearing the 1T is getting to the banks, and the amount of market money is 1T x Money Multiplier.

How does the money gets from the govt to the banks?

Thanks.


texts: How would you call a market for kidney donors and recipients?

texts: I was wondering how you would call a market for kidney donors and recipients, where you have many 'buyers' and many 'sellers'. However, the 'seller' can only 'sell' his/her 'product' once. Since it's illegal to sell kidneys, the market structure is a little bit vague for me to categorize. Suppose selling and buying kidneys would be legal, how would that market be called?


texts: What is the Walras law vs first welfare theorem

texts:
As far as I know, both of the first welfare theorem and the Walras law are closely tied to the invisible hand. what is the difference between them?

thank you very much for your help


texts: How is Singapore able to provide first-world public services, given its low income tax rate?

texts:
Singapore has a relatively low personal income tax rate. Somebody who earns $80,000 after deductions only pay 3,350 in taxes, or about 4% effective rate (see 2012-2016 tax table). 80,000 is already well above the gross median income in Singapore, which is 3,770 per month in 2014 (source).

Despite, this Singapore is well known for its first-world public services, including public transportation, education, security, public housing and utilities. Personally I've lived there and I enjoyed the level of public services that otherwise can only be observed in countries with much higher taxation than 4% (e.g. United States, Canada or Western European countries) or countries that rely on oil revenues thus eliminating the need for taxation (e.g. Gulf countries). I don't know how to prove this with hard data, but taking a cursory look at International rankings of Singapore can probably convince you that this is the case.

How is this possible? Absent 'free revenue' such as oil, isn't high level of taxation necessary to fund such high level of public service?


texts: To the following data, what kind of econometric analysis can be conducted/ or what type of relationship can be established?

texts:
I have data for sale in petroleum products across different states in India of both public sector and private sector companies for past 10 years.

No. of years - 2008 to 2018 monthly data for 10 years
No. of petroleum products - 47
No. of states - 35
No. of companies - 14 (public sector - 11 & private sector - 3)

What type of econometric analysis can be conducted on this data? I would like to use VAR, can any ideas be suggested. How can I use VAR and in establishing what relationship?


texts: Clarifying the meaning of market capitalization

texts:
I'm new to this kind of topic and I'm trying to get a deeper understand.
I read that "the shares' price times the number of shares outstanding is the value of a company (=market capitalization)".

However, I'd say that it's just the value of that part of the company that is in the stock market.
In other words, when a company issues an IPO, it might not issue ALL of its shares, but just some of them.
So, let's say that the total amount of shares of a company (A) is 1000. The outstanding shares are 300 at the price of 10\$. The market cap is 300x10=3000\$. This number is the cumulative value of all the issued stocks.

Let's take this a bit further by taking another company (B). The second company has a total amount of share of 10000 (ten times that of A). So, if B issues 100 shares at the price of 10\$ its market cap will be 1000\$.

By comparing the market cap of A and B I'd say that the value of A is three times greater than B, however, that's not correct. Or I should say that it is indeed correct for what regards the market cap, but that's not the case if we consider the shares that have not been issued yet.

So the question is, how can the market capitalization give a hint about the value of a company? Also, how can the market cap be used to compare companies without taking into account the ratio between outstanding shares and the total amount of shares? (like the example above)


texts: What are the benefits of reducing zeroes from currency (eg: Iran)?

texts:
Recently, Iran decided to replace its old currency to a new one.

Quoted from Wikipedia

  A proposal has been agreed to by the Iranian parliament to drop four zeros, by replacing the rial with a new currency called the toman

I have started studying basics of economics very recently. And I assumed the previous and new situations to be something like:

Imaginary Situation 1

Value of each coin = $1
Total coins = 1000
Value = $1000

Imaginary Situation 2

Value of each coin = $10
Total coins = 100
Value = $1000

Since, there are less number of coins it might be easier to perform transactions. That's my assumption of the possible benefits of this scheme.

Question:

Is the assumption correct?
Any other benefits of such a scheme?


texts: Regression analysis with interaction and decomposed main effect

texts:
I'm trying to figure out if I need to include the main effect in a regression analysis with an interaction if I am already including a decomposed version of the main effect.

For example, let:

-INT is an 0/1 indicator variable to use in the interaction
-AVG_Overall is an average value of variable X for all individuals in groups A and B
-AVG_A is the average value of variable X for individuals in group A ONLY
-AVG_B is the average value of variable X for individuals in group B ONLY
-Y is the dependent variable

Is it appropriate to estimate the following regression?:

$$Y_i = \beta_0 + \beta_1INT_i*AVG\_Overall_i + \beta_2AVG\_A_i + \beta_3AVG\_B_i + \beta_4INT_i + u_i \tag{1}$$

This specification omits the main effect of AVG_Overall. However, because AVG_A and AVG_B are the average variables of the two 2 subsets that comprise the overall sample used to calculate AVG_Overall, it seems reasonable that they are capturing the main effect. My thinking is that if the individuals in each subset have an identical effect on Y, then $\beta_2=\beta_3$ and they would also be the same as the coefficient on the main effect AVG_Overall would have been. If, however, individuals in subsets A and B have a different effect on Y, then $\beta_2$ and $\beta_3$ should be different.

An alternative specification is to include the main effect of AVG_Overall along with AVG_A and AVG_B, i.e.:

$$Y_i = \beta_0 + \beta_1INT_i*AVG\_Overall_i + \beta_2AVG\_A_i + \beta_3AVG\_B_i + \beta_4INT_i + \beta_5AVG\_Overall_i + u_i \tag{2}$$

However, AVG_Overall is by definition collinear with both AVG_A and AVG_B, making it difficult to distinguish the different effects of AVG_A and AVG_B ($\beta_2$ and $\beta_3$). Empirically I'm finding that including the main effect of AVG_Overall changes the magnitude of $\beta_2$ and $\beta_3$ and makes them difficult to interpret, although their significance remains basically unchanged.

I have theoretical reasons why I think $\beta_2$ and $\beta_3$ should differ, and also why it doesn't make sense to interact the INT variable with both AVG_A and AVG_B, but I'm concerned that I might be running into some econometric problems.

Please help! Does specification (1) seem appropriate? If so (or if not), can you point me to some resources that explain the statistics behind this?

Thanks!


texts:
I am looking for a mathematical model which can accurately forecast what percentile ($1-p$) of a population a member with wealth $w$ would be in, based on Gini coefficient ($G$). I am planning to apply it mainly only to the top end of wealth.

I have tried to use the Pareto distribution so far. What I am unsure of there, however, is what to do with the parameter $x_{min}$ as described in Wikipedia's article (https://en.wikipedia.org/wiki/Pareto_distribution):

p = $(x_{min}/w)^P$

where $P$, the Pareto parameter, can be expressed in terms of $G$ by a known equation.

Wikipedia describes $x_{min}$ as the (necessarily positive) minimum possible value of $x$. How does one apply this to a real-world population? I can't imagine setting the value to $1 or less would allow for accurate predictions of top-end wealth.

The other problem is, this $x_{min}$ seems to me to behave like an average rather than a minimum value. For example, in a maximally unequal society, $P=1$ so $p = x_{min}/w$. This predicts that 10% of the population have wealth ten times $x_{min}$, 1% have wealth a hundred times $x_{min}$, and so forth. But while this is a pretty unequal society by real-world standards, it is definitely not the most unequal possible - imagine a system where 10% had a wealth a hundred times the "minimum" (or, say, the average of the remaining 90%), 1% had a wealth $100^2$ times the minimum, and so forth. The most unequal system would really be everyone having "minimum" wealth except one individual. But the inequality here seems to be capped much before that.

Can anyone help with my model?


texts: In what sense are "new-Keynesian" models "new" and in what sense are they "Keynesian"?

texts: Hopefully, the title of this question is quite descriptive. Whilst I have a broad understanding of the research agenda of macroeconomics, I don't have a very good picture of how it is divided into various schools and traditions. Is there a way to briefly summarise what exactly New Keynesian macro is and how it relates to the rest of what is going on in macroeconomics?


texts: How does investment lead to generation of jobs?

texts:
I quote from India's Economic Survey 2019 (an official document) -

  While the claim is often made that investment displaces jobs,
  this remains true only when viewed within the silo of a specific activity. When
  examined across the entire value chain, capital investment fosters job creation
  as the production of capital goods, research & development and supply chains
  generate jobs.

The immediate affect of investment is displacement of jobs due to increase in productivity.

Even if we look at the entire value chain, the new jobs created will require new skills. Is there any reason to claim the net affect on job loss is not significant?

For example, when IT revolution displaced clerical work, did it create enough jobs to absorb all those clerks? (I know it must have in the next 20 or 30 years but during the interim period there was significant job loss right?)

I want to clarify that I am not arguing against investment because of the potential job losses. I understand that regardless of job losses, investment and productivity gains are inevitable.


texts: For a given set of consumption bundles, how do we know there are bundles that the consumer is indifferent between?

texts:
In my professors lecture notes (it's more like a book), he states four properties of preferences relations:

monotonicity
transitivity
continuity
completeness

He then goes on to discuss utility levels and indifference curves. He describes indifference curves as level sets and that consumption bundles that the consumer is indifferent between lie on the same indifference curve.

My Question:

For a given set of consumption bundles, how do we know there are any bundles that the consumer is indifferent between? I don't see how we can define indifference curves without knowing that.


texts: Currency Devaluation - As a Means of Paying Off Debt

texts:
From https://www.sapling.com/8117368/debt-handled-currency-devaluation:

  Currency devaluation will not only affect consumer debts, but it will affect how a country pays back its national debt. If a loan is denominated in the devalued currency, then the debt will be easier to pay off, as the country will have to spend less money paying back foreign investors.

The above quote doesn't make sense to me. Why would the country have to spend less money paying back foreign investors?


texts: Are there any countries that applied austerity measures and had a positive outcome that was attributed to it? Why do institutions like the IMF often encourage or require it?


texts: Can infrastructure costs be covered by taxes on flat sales/rents?

texts:
Instead of describing the general question, let me give a concrete example.
Suppose in a city they want to extend a metro line but they don't have enough budget for it. Could the city designate a locality which would mostly profit from the extension and say that in the next 10 years any flat sold or rented in the area would have an additional 10% sales tax which would go to the metro building funds? I'm thinking that this way the residents would also profit financially (even those who don't use the metro), as due to the metro extension they could sell their flats for, say, 20% more, so about half of this increase would go to the city, the rest to the residents. What would be some issues with such a tax?

Ps. Of course there are several variants, like whether the tax starts only after the extension is completed (from a bank loan), how long the tax needs to be paid (fix years or until enough money is collected), should it be also for rents or only for sales, should only the first sale of each flat be taxed or also subsequent sales, how should the boundary of the tax be determined (possibly with several zones, like some paying just half the tax), which politician should steal the money etc. I'm mainly interested in why the main idea has never been implemented, AFAIK.


texts: (Net worth) combined annual output of Japan, Germany and UK?

texts:
The following is a quote from old news. What’s the meaning of “combined annual output of Germany, Japan and Britain”? Which output?

  The Fed said Thursday that U.S. households' net worth tumbled by $11 trillion (in 2008)-- a decline in a single year that equals the combined annual output of Japan, Germany and UK.


texts: Utility of expected income or expected utility of income?

texts:
Currently I am reviewing microeconomic material related to utility maximization due to an upcoming examination. One old exam question asks me the following for which I am not sure whether to use the utility of expected income or the expected utility of the income.

Suppose agent A has the utility function $u(y) = y^a (a > 0)$ and the possibility to study and pay university fees $F$. After studying he may get income $y_1$ with probability $p$ or income $y_2 < y_1$ with probability $1 - p$. If he does not study he will have income $y_3 = 0$. When will the agent start studying and what does it depend on?

My thoughts on this question are as follows. Intuitively, it will highly depend on the fees $F$. On the one hand, the expected income of the agent if he studies is

$$\mathbb{E}[y_i] = p(y_1 - F) + (1 - p)(y_2 - F) = p(y_1 - y_2) + y_2 - F$$

If he does not study the expected income is just $F$, i.e. the saved fees.

So the utility of the expected income is just $U(\mathbb{E}[y_i]) = (p(y_1 - y_2) + y_2 - F)^a$ in case he studies or $U(y_3) = F^a$ if he does not. I could just set up an inequality now and say that if
$$ p(y_1 - y_2) + y_2 > 2F,$$
that is, if the expected net income is greater than twice the fees, the agent decides to study. But then I remembered that I might be wrong in looking at the utility of the expected income and that I should rather look into the expected utility. Then, if the agent studies he will have expected utility
$$ \mathbb{E}[u(y_i)] = p(y_1 - F)^a + (1-p)(y_2 - F)^a = p((y_1 - F)^a - (y_2 - F)^a) + (y_2 - F)^a$$

and, if he does not study,

$$\mathbb{E}[y_3] = F^a $$

Similar to above I now could set up an inequality which is different from the one before. Therefore, I am a bit puzzled as to which utility to use here? The expected utility or the utility of expected income and why?


texts: Is the minimum of short run average cost equal to the minimum of long run average cost?

texts:
I understand that for perfect competition, the price is equal to minimum short and long run average cost in the long run as there cannot be any supernormal profits.

Does this mean that the short run and long run average cost at their minimum are equal for perfect competition in the long run? My textbook states that they are "tangential" to one another, but shouldn't they be equal if there are no supernormal profits?

A wikiedpia article states one STC curve is tangent to LRTC at the long–run cost–minimizing level of production. At the point of tangency LRTC = STC. At all other levels of production STC will exceed LRTC. Why is STC equal to LRTC at this point and not at others? And does this also refer to average costs?


texts: Optimal commodity taxation - solving for the optimal tax rates?

texts:
I need to solve for optimal tax rates for two products.

In my model there are N identical households that maximize their utility function subject to a budget constraint.U is positive utility function, D is disutility function. Y is income.

$$U(x_1,x_2,y_1,y_2)- D(x_1,x_2,y_1,y_2)$$

Subject to:
$$q_1^x x_1+ q_2^x x_2+q_1^y y_1+q_2^y y_2 = Y$$

The state government wants to tax goods $x_1$ and $x_2$ and they need to solve for the optimal tax rates $t_1^x$ and $t_2^x$.
$y_1$ is same good as $x_1$ but purchased in another state, $y_2$ is same good as $x_2$ but purchased from another state.
State government wants to maximize the sum of all utilities, subject to raising a certain amount of revenue.

$$max ∑_hU(x_1,x_2,y_1,y_2)- D(x_1,x_2,y_1,y_2) + a[Y-q_1^x x_1- q_2^x x_2-q_1^y y_1- q_2^y y_2]$$ by choosing $t_1^x$ and $t_2^x$

Subject to
$$t_1^x ∑_hx_1 + t_2^x ∑_hx_2   ≥R$$

When I take the first order conditions for $t_1^x$ and $t_2^x$, I end up with two complex equations that have Lagrange multipliers in them, therefore I am not able to obtain expressions for each tax rate that would not have the Lagrange multipliers in them.
Do I need to make more assumptions in order to obtain the expressions?


texts: What's the economic effect of a country reducing its imports?

texts:
If a country enacts a program that successfully reduces its imports, eg:

A 'buy local' advertising campaign
A program of training mechanics to maintain older cars, rather than buying new imports
An extensive public transport program that reduces the country's oil imports.

(These programs aren't reducing imports by imposing tarrifs).

What would the effect on that country's economy be?

Under existing trade rules, are any of these examples likely to breach free trade agreements?

On the face of it, a reduce demand for imported goods would correspond with a lower supply of that country's currency, as they need to sell less of their own currency to buy the imports they need. This would raise the price of their currency, and that would in turn reduce demand for the country's exports.

However, I'm wondering I'm missing another side of the equation here - eg, selling currency for international investment.