texts: Difference between a fixed pricing system and a two tier system regarding inflation onset through illegal transactions

texts:
I hope this layman's question is not off topic. I was not able to find guide lines as to how professional questions have to be.

I am trying to qualitatively understand the origins of the Tiananmen protests in China in 1989. My textbooks all very much emphasise the role of Deng Xiaoping's economic reforms. In particular they all replicate the following reasoning from Silenced Scream: a Visual History of the 1989 Tiananmen Protests. Donna Rouviere Anderson, Forrest Anderson. p. 1:

Now, my understanding is that, in a market with shortages, well connected individuals buy legally at low prices and sell illegally -on the black market - for high ones, which induces inflation. Is there a reason, why a two tier system should suffer from this more than a fixed price system? After all, in both cases, one has to subvert the dictated prices to reap the benefits!

EDIT:

Or did I perhaps misunderstand the envisioned process and is he not talking about black markets?

I would understand the claim that the fluctuating prices in the two tier system would induce inflation, but I don't understand the process described above.

EDIT:

I just found this quote explaining the nature of the two tier system a bit more:

  A dual-price system was introduced, in which (State-owned enterprise reform 1979) state-owned industries were allowed to sell any production above the plan quota, and commodities were sold at both plan and market prices, allowing citizens to avoid the shortages of the Maoist era.


texts: Why is matching function increasing in arguments?

texts:
In matching theory, the matching function $m_t=m(u_t,v_t)$, where  $m_t$ is the number of matches(new hires) between unemployed looking for work($u_t$) and vacancies($v_t$).

This matching function is usually assumed to be increasing in its arguments, i.e. partial derivatives are positive.

What's the rationale for this?

Is there any data allowing us to conclude that it should be so?

Any help would be appreciated.


texts:
GDP is a measure of a country's production.

$$GDP = C + I + G + X_n$$

$C$ = Consumer Consumption
$I$ = Gross Investment
$G$ = Government Expenditures
$X_n$ = Exports - Imports

Exports are what we produce and make a profit from by selling to buyers outside our country.  Imports are not produced by our country, so it shouldn't be included in the GDP, so it makes sense to exclude it from the calculation; ie. there should be no "- imports" in the calculation.

However, the calculation subtracts imports from the GDP.  Imports somehow take away from what we produced?  That seems to say, calculate how much I have produced, X, and then don't count some of it because I imported Y.  Which doesn't make sense given that importing doesn't remove goods and services that have already been produced!

For example, let's say I can take apples and make pies... I produced value in the form of the "pie" quality.  Importing the "pie" quality and tacking it on an apple creates an apple pie.  However, I didn't make that "pie" so I can understand how it doesn't get included in the GDP: the value of the "pie" quality was not produced in this country, so it isn't included in the GDP.

Let's also say my GDP = "made a cat meow" + "turned a tree into a fountain".  Somehow, by importing the "pie" quality, I am to ignore some of the value of making a cat meow?


texts:
Why is Mises "permitted" to define "Economics is an a priori science", if a priori is not trustworthy?

In philosophy of science and natural sciences a priori as a method of knowing has long been identified to be sufficient only in special cases and more broadly mainly just among the formal sciences (mathematics, ...). By sufficiency I mean that it's sufficient for obtaining enough information in order to make empirically accurate predictions.

Since economics is about empirical things (people, resources etc.), then defining economics as an a priori science just seems very naive, if not even dangerous, because when combined with politics, such economics could propose anything and then claim validity to it, because "well it's an a priori science". What if one claimed that "Islam is an a priori science"?


texts: Annual Data and Heteroscedasticity (Engle's ARCH test)

texts:
GARCH models are often applied to financial time series (daily, weekly or monthly stock returns). What about lower frequency such as quarterly and annual time series? This could include macroeconomic variables (e.g. GDP, aggregate consumption) or accounting data (e.g. book values, ...)
Question: Is there evidence for time varying second moments in annual economic data? Are there papers applying ARCH tests at low frequencies? What lags are commonly used in this case?
I'm mostly curious whether/how working at a much lower frequency impacts the ''standard'' GARCH modeling from daily stock returns?


texts: what are Investments (as defined in macroeconomics) that Households make?

texts:
i guess a) NEW house
b) buying shares in a domestic company in an IPO
c) investment in a personal business , eg taxi driver buying a NEW taxi, shop owner buying his shop or renovating it

what about paying for school for kids? (improvement of human capital)?

what about land improvement, eg building a parking lot, or new apartment building ,

what about in farming, is maintenance = investment? eg is putting in fertilizer investment?
i guess that maintenance is not investment , only IMPROVEMENT could be investment.  eg trucking in better quality soil would be investment ?


texts: Calculating monetary base from given data

texts:
I need to some data for Pakistan's monetary base. Searching through the website of State Bank of Pakistan (SBP), I found the following pdf on Monetary Statistics.

I wanted to ask that can I calculate monetary base from the given values.

Following is a list of values given in pdf in case pdf is not opening for you.

Currency in Circulation
Other Deposits with SBP
Currency in Tills of Scheduled Banks
Banks' Deposits with SBP

Regards


texts: What exactly is purchasing power parity (PPP)?

texts:
I have some questions regarding what exactly PPP is. In my understanding, PPP is essentially the value that a currency can purchase within an area. For example, although the USA might have more money in the international area, the total amount of monetary value can purchase more goods in China due to the low price of living there.

The problem I have with this is that it seems that value is subjective. For example, it might be cheaper to purchase labor in China than in the US however it is much more costly to purchase an iPhone there. How you decide which is more valuable?

If what I am saying makes no sense at all, please explain what PPP is.


texts: What are the economic consequences of discounting deferred tax liability?

texts:
I was wondering why the IAS prohibits companies from discounting their deferred tax items?

Are there any particular economic reasons for implementing such prohibition?

Thank you!


texts: Phillips designed a hydraulic computer to model the UK economy in 1949; 12-14 copies were built. What model did it compute with? How have modern models of the UK built on that work?


texts: Calculate the elasticity of substitution of Epstein-Zin preferences

texts:
$$
\newcommand{\E}{\mathbb{E}}
$$
Let a consumption
sequence be given $C=(C_0, C_1,...)$ and let
$C_t^+ = (C_t, C_{t+1}, ...)$.
Now, suppose I have Epstein-Zin preferences,
\begin{align*}
U_t(C_t^+) &= f(C_t, q(U_{t+1}(C_{t+1}^+))) \\
U_t  &= \left \{(1-\beta) C_t^{1-\rho}
+ \beta \left(\E_t[U_{t+1}^{1-\gamma}]\right)^{\frac{1-\rho}{1-\gamma}}
\right\}^{\frac{1}{1-\rho}},
\end{align*}
where $f$ is the time aggregator and $q$ is the conditional certainty
equivalent operator. That is,
$$
f(c,q) = ((1-\beta) c^{1-\rho} + \beta q^{1-\rho})^{\frac{1}{1-\rho}}
$$
and
$$
q_t = q(U_{t+1}) = \left(\E_t[U_{t+1}^{1-\gamma}]\right)^{\frac{1}{1-\gamma}}.
$$
How do I show that the intertemporal elasticity of substitution is
$\rho^{-1}$?


texts: How constant returns to scale leads to zero economic profit?

texts:
This was mentioned in my textbook Macroeconomics-Gregory Mankiw.

  If the production function has the property of constant returns to scale, as is often thought to be the case, then economic profit must be zero. That is, nothing is left after the factors of production are paid.

It was mentioned that this comes out as a result of Euler's Theorem, but I don't quite understand it, can anyone please clarify this?


texts: a risk lover agent preferences and the preference of risk natural agent may be the same

texts:
Consider two lotteries $N$ and $M$. Agent $i$ is risk-averse and prefers $N$. Agent $j$ is risk-neutral and prefers $M$. Would any risk-loving agent $k$ also prefer $M$? That is, would $j$ and $k$ have the same preferences in this scenario?

My attempt:

For example, I can easily show that a risk averse agent can behave as if it is risk natural. I can show this on indifference curves by using the equal marginal rate of substitution.

Then I consider and follow the same way to demonstrate a risk lover agent behave as if risk natural agent by using MRS. But I cannot a result that does make sense.

But I know and assume that I need to use MRS and indifference curve. After that point, I am glad if you give any help. Thanks a lot!


texts: Do standard definitions of substitute goods and complementary goods assume the Law of Demand?

texts:
It seems to me that they do. Suppose $x$ is a Giffen good (that is, it violates the law of demand). Then when $p_x$ increases, the quantity of $x$ demanded increases. Suppose also that this increase of $p_x$ decreases the demand for $y$. Now, the standard definition for complements suggests that $x$ and $y$ are complements because the demand for $y$ decreased when $p_x$ increased. I would argue, however, that they are, in fact, better thought of as substitutes as the change in $p_x$ leads to the quantity demanded of $x$ increasing as the demand for $y$ decreases, i.e., the consumer is substituting from $y$ to $x$.

By "standard definitions" of substitutes and complements, I'm referring to:

$x$ and $y$ are substitutes if demand for $y$ increases when $p_x$ increases.
$x$ and $y$ are complements if demand for $y$ decreases when $p_x$ increases.

Is there an alternative definition out there that is robust to Giffen goods?


texts: I understood the general idea of divinity: that it helps to rule out "unreasonable" equilibria.  However, can someone explain it in more details with simple examples so that a senior undergrad student understands it?


texts:
I have read in many books that since utility cannot be measured - so ordinal concept or comparison concept is used.
If that is so, how can one define a mathematical function for utility which gives a cardinal value for inputs.
The two things mentioned above are inconsistent with each other.

Can somebody explain what I am missing here.


texts: Impulse Response Functions for non-linear models?

texts:
The notes I'm reading define the IRF as $\text{IRF}(h)=E_t(X_{t+h})-E_{t-1}(X_{t+h}|\text{shock}_t)$. All the examples they show are linear, i.e. ARMA. However, they say that for nonlinear the formula gets harder. But they don't show explicitly how to do it. So,how does one compute the IRF for non-linear models?

Any help would be appreciated.


texts:
I am an undergraduate student working on environmental economics research. The econometric specification I am using is the following:

ln(Per.Capita.Dollars) = ln(Per.Capita.Dollars.lag) + Average.Annual.Temp + Average.Annual.Prcp + Average.Annual.Temp.lag + Average.Annual.Prcp.lag + factor(Year) + factor(Unique.County)

Where:

Temp = Temperature; Prcp = Precipitation; Unique.County = Unique US county

.lag is indicating a new 1 year lagged variable.

If I am aggregating my weather variables annually does it still make sense to have a Year fixed effect (I know it does when using a smaller time step)? Similarly I will be aggregating over counties to a national scale (looking at just the US), will it make sense to have some sort of national fixed effect?


texts: How to verify Value Function in nonzero sum two player Differential Game?

texts:
There are two agents $i=1,2$. The state $k$ is governed by $\tau_i\in[0,1]$ where
\begin{align}
\dot{k} = f(k,\tau_1,\tau_2).
\end{align}

Define the value function of player $i$ by
\begin{align}
v_i(k) := \sup_{\tau_i}\int^\infty_0{e^{-\rho t}F(k,\tau_i,\sigma_{-i})dt}.
\end{align}
where $\sigma_{-i}(k)$ is the policy function or a markovian stratgey profile of player $-i$. And $\rho>0$ is the time preference rate.

The Hamilton-Jacobi-Bellman equation reads
\begin{align}
\rho v_i(k) = \sup_{\tau_i}\{F(k,\tau_i,\sigma_{-i}) + v'(k)f(k,\tau_i,\sigma_{-i})\}.
\end{align}

Now assume I approximated a function $\hat{v}_i$ by value function iteration. How do I know that it's the true value function?


texts: When to use the market and when to use central planning?

texts:
I have a basic question: my understanding is that in a market economy, economic decisions are governed by prices, i.e prices signal what should be produced & how much. This is opposed to central planning, where a committee decided what should be produced & how much.

Now, in companies or households, such economic decisions are made by "central planning": i.e. - the CEO/board, or parents. Why shouldn't prices be used at these levels too? For example, why don't companies create a "currency" and tell employees to work on things that people with more "money" (senior management) will buy? Or, in a family, for parents to create a "currency" and tell family members to work on things that others will pay for? (done in small ways in some families, but not with everyone participating).

Bottom line of the question: When is it better to use a "market economy" (with prices) as compared to central planning? Is it a function of size? I don't think so...


texts: What Does "Quantity" Represent When Looking at Supply and Demand?

texts:
There are several possible scenarios involving changes in supply and demand that people are supposed to memorize in AS Economics. For example, when Either Demand OR Supply Move on Their Own:

Rising Demand - Increase in Qty - Increase in Price
Falling Demand - Decrease in Qty - Decrease in Price

While price is pretty self explanatory in every situation, I have yet to fully understand what "Quantity" represents.

What does Quantity mean in these examples?

Does it mean "Equilibrium Quantity"? If so, can somebody please explain how the "Quantity Demanded" and "Quantity Supplied" are related to each other, and how the theory behind quantity as a whole relates to/ties in with each of the examples above?


texts: Homothetic production function and Profit Function

texts:
I know that homothetic production function implies that cost function is multiplicatively separable in input prices and output, and it can be written as
C(w,y)=h(y)C(w,1). Can some one help me derive the functional form of profit function in case of homothetic production functions?


texts:
I was analysing, free of specificities, the effects of an increase in the real interest rate on labour supply in a two period setting. The obvious effect on leisure is the intertemporal substitution effect as leisure in the present becomes more expensive than leisure in the future. Nevertheless, all the books I have looked at do not mention any income effect from this. Shouldn't the latter one exist as well? The increase in interest rates, if one is a net lender, allows one to increase leisure in both periods.

Now looking at the typical optimization FOC:

$$\frac{\frac{\partial U}{\partial l}}{\frac{\partial U}{\partial l'}}=\frac{(1+r)w}{w'}$$

(1+r) increases, thus, the ratio needs to increase. Nevertheless, that can happen by increasing both levels of leisure, but by different amounts. Am I reasoning incorrectly?

{Please disregard from mentioning all other intertemporal and cross effects, ex. consumption and leisure as I am aware of them}


texts:
I've been thinking about this situation lately:

A normal good $x$'s price has become unreasonably high. Would it be a good idea for consumers to boycott (i.e. stop buying) $x$ in order to drive down its price, then continue purchasing at the lower price? Why or why not?


texts: Depreciation of local currency and its effect on prices

texts:
I have problem with an article Lee H., C. Park, 2013, International Transmission of Food Prices and Volatilities: A Panel Analysis.

Authors wrote:
Difference in log of exchange rates (LOC/ $)- As depreciation of local currency (LOC) against the US dollar will result in higher domestic prices of imported food products in local currency, this variable is expected to carry a positive sign.

Variable (LOC/$) has positive sign in there econometric model. How it is possible?

When exchange rate (LOC/$) rises we have aprreciation of local currency so food prices are lower. I think that the sign should be negative

Can someone help me?


texts:
I've got a question to ask about the Nash Demand game from my assignment.

  Sarah and Ruth find \$100 on the ground and decide to split it between them in the following manner. Each individual simultaneously and independently selects how much of the \$100 she wants to keep. Denote this value by $xi$. If $+≤100$, then each player receives the amount she desires. If $+>100$, they forfeit the \$100, and each player receives \$0. Find all of the Nash equilibria. Explain how you come to your conclusion (i.e. how you know that your answer is exhaustive.)

I think that I've solved the Pure Strategy Nash Equilibrium for this game which is basically $+=100$. But I'm wondering whether there are any Mixed Strategy Nash Equilibrium so if anyone could help me out that I would be very appreciative! :)


texts: Existence of Symmetric Pure Strategy Equilibrium

texts:
I have 2 symmetric players $A$ and $B$.

Each of them has 2 decision variables $x_i\in[0, \beta]$ and $y_i\in[0,1]$, where $i\in\{A,B\}$.

Their payoff functions are symmetric, i.e., if you swap the label $A$ and $B$, you get the other player's payoff function. And the payoff function is continuous in both $x$ and $y$.

My question is: for this type of game, does it always have symmetric pure strategy equilibrium? In general, what are the conditions to guarantee the existence of symmetric pure strategy equilibrium?


texts: How can I best estimate a company's contribution to GDP?

texts: Would revenues be a good proxy variable? If not, what are the other proxy variables that I can use?


texts:
I am interested in finding the quarterly real GDP growth rate of US and have found the following two measures from IMF International Financial Statistics:

Which one should I choose (Dark Green or Light Green)?


texts: Hotelling rule and the shadow prices in a peg

texts:
Hotelling rule states that at equilibrium

$$\frac{\dot p(t)}{p(t)} = i$$

Meaning that rate of change of the price at time $t$ should be equal to $i$, the interest rate. Assume that the government pegs the price at the level $P^{*}$. Assume further that the shadow price at time t is given by: $Q_t =( \sigma i S_t)^\frac{-1}{\sigma}$

Show that if $\dot q(t)= i$  then $Q_t = P^{*}$

My questions:

(1) what exactly is $\dot q(t)$ or $\dot p(t)$. Is it the derivative? I couldn't make sense out of it.

(2) Is the hoteling condition given in logarithms?

(3) And what method to go with after understanding (1)-(2)

EDIT:

Yes, this is a homework question. However I never asked you to solve the question. I asked what kind of a method would be used in this case. Since the problem doesn't make sense.

$$q(t) = log (Q_t) = \frac{-1}{\sigma} log(\sigma i S_t) \\ \frac{dq(t)}{dt}=\dot q(t) = \frac{- \sigma i S_t}{\sigma^2 i} = \frac{- S_t}{\sigma }$$

So condition on $q(t)$ implies that $S_t = - \sigma i$. Which I believe there is a problem since $S_t <0$ Anyway :

since $S_t <0$ at this specified time $t$ all the resources have varied off.

If I ended up finding $S_t = 0$ then I would conclude that at this time $t$ all the speculators bought up the resource and since the resource was sold at the price $P^*$ somehow this would imply $Q_t = P^*$

But $S_t <0$ is the result we get. Which simply says that all the goods were bought plus government bought some goods. I think that implies a price $q(t)>P^*$


texts: Profit maximization and returns to scale relation

texts:
Suppose we have 2 inputs a and b , output is y=f(a,b).
In the long run, let us suppose profits are maximized at a* and b*.
Profit is py-wa-kb[p is price and w and k are constants]. Now for max profit, profit equals py-wa*-kb*.
Now for constant/increasing returns to scale firms, doubling input clearly doubles or more the profit which means there can be no finite a* and b* for such firms which does not make logical sense to me.
Where am i wrong?


texts:
I'm confused about how one acquires the data necessary to compute price indices--specifically, how one acquires quantity data.

Suppose I wanted to compute the Laspeyres Index, defined as

$\sum\limits_{i=1}^{N} p_{i}(t_{f}) q_{i}(t_{0}) / \sum\limits_{i=1}^{N} p_{i}(t_{0}) q_{i}(t_{0})$

where $N$ is the number of different goods, each $p_{i}$ is a price, and each $q_{i}$ is a quantity. Each $p_i$ is measured in units of currency per units of a good, and each $q_{i}$ is measured in units of a good per unit of time.

But as far as I can tell, we can't measure $q_{i}(t_{o})$ or $q_{i}(t_{f})$. These represent the instantaneous rates that a certain good is sold at a particular time, whereas data-collectors are only able to ask how much firms have sold of a good over a period of time--in other words, we can measure

$\int\limits_{t_{0}}^{t_{f}} q_{i}(t)dt$

by summing the total sales of all firms that sell good $i$ during the period between $t_{0}$ and $t_{f}$, but not

$q_{i}(t)$

for any given $t$.

How do actual econometricians measure $q_{i}(t_{o})$ and $q_{i}(t_{f})$? Do they measure the number of goods sold $x$ days after $t_{0}$ or $t_{f}$, then divide by $x$ for a sort of local approximation? Or do they use some other method?


texts:
Suppose the AD curve is relatively flat because the Fed wants a stable price level.

Which policy (monetary or fiscal) is ineffective?


texts: An overview of 4 books for an undergrad course in Mathematical Economics

texts:
I plan to self-study, at an undergraduate level, Mathematical Economics. It covers 3 main topics

Introduction to economy science

Microeconomy

Macroeconomy

Each of these have lots of sub-topics. And the recommended books are

Microeconomic Theory: Basic Principles and Extensions by  Walter Nicholson, Christopher Snyder

Fundamental Methods of Mathematical Economics by Chiang & Wainwright

Macroeconomics in the Global Economy by Jeffrey D. Sachs, Felipe Larrain

Intermediate Microeconomics: A Modern Approach by Hal R. Varian

My questions

What's the overview of these books for an undergraduate course?

Are they good for self-study? If not, could you recommend books to cover the mentioned topics for self-study?

What's a Mathematical Economics course like? One of my statistics professor once said that is not a difficult course but there are like tons of concepts that one needs to memorize  and there remains its complexity.


texts: Black-Litterman Weights for Intersecting Asset Classes

texts:
I'm trying to implement Black-Litterman for an arbitrary selection of assets some of which might be subsets or intersect with others.
For example, one portfolio might be

US Equities (VTI)
A global clean energy sector ETF (ICLN) which would include some US equities
VWDRY that's a constituent stock/holding of ICLN
TSLA that might be considered part of the clean energy sector

Another example portfolio might be

CARZ, an automobile ETF
ICLN, global clean energy ETF with some members overlapping with CARZ
TSLA, which could be considered part of both

What would be the best way to calculate the "market capitalization weights" for these instruments given that there might be overlap between these instruments in terms of market cap sizing?
Once market cap sizing is done, would I be able to estimate expected returns in the same way using the reverse optimization method?
Thank you!


texts: Does anyone know who actually owns the federal reserve? It's like a public private institution, who are the private owners, and who are the public owners?


texts: Practical examples of fair division algorithms being used

texts:
Consider the problem of fairly sharing a homogeneous cake between two people. It is well-known that a fair division can be achieved through the divide and choose procedure: player 1 cuts the cake into two pieces and player 2 chooses a piece.

This problem can be generalized to non-homogeneous cake, more than two players, etc.

My question is: are there any concrete examples of people using the fair division procedures (such as divide and choose) that emerge as the solution to such problems in practical applications?


texts: The efficient frontier in mean variance criterion

texts:
The efficient frontier is the portfolios with the minimum of variance ($V$) at a given mean ($E$) or a maximum of mean at a given variance，Why do the optimal portfolios in the effcient frontier, is the efficient frontier consistent with the maximum of expected utility?
For example, assume a logarithmic utility function U=log(1+R), through Taylor series expansion and keep the first three terms,  we can get the expected utility $EU=E-(E^2+V)/2$, from this equation, take the partial derivative of $E$, it is not monotonical increase, it is the same with $V$, it seems the efficient frontier does not lead to the maximum of expected utility.
I understand if the utility function is expoential, the expected utility $EU=E-\lambda V$, which is exactly consistent with the efficient frontiers. I just do not know the other form of utility function, like the logarithmic form as above.
Any help would be appreciated.


texts:
I have three variables: $y$, $x_1$ and $z$.

I'm interested in finding the effect of $x_1$ on $y$.
Unfortunately $x_1$ is endogenous so I use an instrument z.

I know that $z$ is correlated with $x_1$. The problem is, $z$ is correlated with another variable ($x_2$) that arguably has an effect on $y$. $z$ is unlikely to have a causal effect on $x_2$, but $x_2$ may still be endogenous for other reasons (e.g. reverse causality, etc.).

Will the following procedure give me a consistent estimate of $\beta_1$:

two stage least squares with $y$ regressed on $x_1$ and $x_2$, with $z$ as an instrument for $x_1$?


texts: In the Solow growth model, does labor grow like technology at the steady state?

texts:
The Solow growth model defines

$$k_t \equiv \frac{K_t}{A_t L_t}$$

Let our production function be Cobb Douglas

$$Y_t = K_t^\alpha (A_t L_t)^{1-\alpha}$$

We have

$$A_t = A_0 e^{gt}$$
$$L_t = L_0 e^{nt}$$

We find the steady state is

$$k^* = \left(\frac{s}{n+ g + \delta}\right)^{\frac{1}{1-\alpha}}$$

At the steady state, we notice

$$\frac{K_t}{L_t} = A_t k_t = A_0 e^{gt}  \left(\frac{s}{n+ g + \delta}\right)^{\frac{1}{1-\alpha}}$$

My Question

Does $$\frac{K_t}{A_t} = L_t k_t = L_0 e^{nt}  \left(\frac{s}{n+ g + \delta}\right)^{\frac{1}{1-\alpha}}$$

also grow at the steady state? In several lecture notes I found online, no one discusses this so I wanted to clarify.

Follow Up

But if $\frac{K_t}{L_t}$ and $\frac{K_t}{A_t}$ both grow this way, then

$$K_t = A_0 e^{gt} L_0 e^{nt}  \left(\frac{s}{n+ g + \delta}\right)^{\frac{1}{1-\alpha}}$$

So does this mean $K_t$ is a function of these parameters (e.g. $A_0$) or is this not a valid economic expression?


texts: Good Site for Practicing Advanced Problems

texts:
In the past I have used Khan Academy to great success to practice advanced math problems. It is useful because it gives simple questions in a multiple choice fashion then it quickly tells whether your were right or wrong, and it will walk you through the correct approach as needed.

Now I am in my first semester of a PhD in economics. Khan Academy has a series on economics, but it is no longer sufficient. The series is not accompanied with practice problems and it is done largely in algebra rather than calculus. Finally, there are a number of graduate topics it entirely misses such as:

Phase diagrams
Lagrangian multipliers to solve for optimal allocation
Compare/contrast of using different models for the same question (Austrian, Solow, Diamond, RCK, DSGE...)

If it helps, a primary course text is Romer's Advanced Macroeconomics, 4ed.

What are some online resources to practice such problems?


texts: Philosophy books for decision theory and economics idea

texts:
I have learned economics so far, the most astonishing economics' thing is its though which is talkable and visually in the real world or the abstract world that is worth researching and talking. What I see in common is the abstract ideas that are generated from philosophy and economics is the social science study, I am interested in both philosophy and economics but what I only know and read is economics' side, not philosophy's side.

Does anyone recommend any book worth for spending the time to gain both sides of knowledge?


texts: Why does not the Bank of England set the Libor?

texts:
In a report by the BBC, it emerged that the Bank of England suggested some banks to lower the Libor, around 2008. The Libor is normally set by commercial banks, and it is directly affecting mortgages and lending rates (more info here). As the BBC Radio 4 commentator said this morning, it is the "rate that really matters". However, the news is presented as a breach of authority, as it is not the competence of the BoE to manipulate the Libor. And yet, the BoE wants to affect short term interest rates to affect commercial lending! All this is a bit odd.

If this rate is so important, why is it not the Libor the key tool of monetary policy of the Bank of England? Why to bother with an "imperfect" tool like the rate of short term gov. bonds, and not set the Libor, for the whole range of maturities (as banks do), directly?


texts: Finding Pareto efficiency from competitive equilibrium

texts:
So to my knowledge, the competitve equilibrium would be Marginal cost= Marginal private benefit. My question is, how would you determine what the pareto efficiency is from the Marginal social benefit line when it is shifted outwards from MPB?

Is there also a deadweight loss at competitve equilibrium?

Thanks in advance for any help!


texts: What's the logic behind dividing rental price of capital and wage rate by price level?

texts:
I've just started to learn macroeconomics and I think even the teachers can't get what's the price level and why we divide by it in order to find for example real economic profits.
Textbook says "What firms and households care about are profits in terms of what they can
buy, that is, real economic profits. We divide the preceding expression by the price level,
P, to get real economic profits     $$Π= F(K,L) - (R/P)K - (W/P)L$$
I just cant understand the part of dividing by P, everything else is clear.
Thank you.


texts: Why are Hicksian demand curves unobservable

texts:
I have read this paragraph in a book (Jehle, Reny: Advanced Microeconomic Theory):

I don't quite understand why Hicksian demand curves aren't directly observable? What does observable stand for in this context?
I can create a Hicksian demand function, which I then can differentiate for prices and so on, so why can I not observe them?


texts:
When a city like Seattle raises the minimum wage to 15/hr, how does it affect the labor market in adjacent cities?

Are there examples, studies or accepted practices to address: Difficulty staffing entry level positions when labor pool can work across the street for several dollars/hr more?


texts: Zero-sum games being converted into positive-sum games

texts:
It seems as if "pure, naked self-interest", that is, self-interest without liberty, results often in a zero-sum game. (I'm using the term liberty in a Lockean sense, where it is taken to mean the presence of wise regulations that actually enhances our freedoms).

Therefore, it also appears that the presence of such regulations have a role in the harnessing of self-interest for the common good, where a zero-sum game is essentially converted into a positive-sum game.

I'm curious if this line of analysis has been explored in the literature. Any references to articles in the literature are welcome and would be much appreciated.


texts:
I have been reviewing calculations to find walrasian equilibrium and pareto efficient allocations.

Assume we are in an environment with two consumers, $A$ and $B$, and two goods, $x$ and $y$. From this article in wikipedia, we have that a sufficient condition for pareto efficiency is that the marginal rates of substitution are equal for both consumers.

However for practical purposes this seems only useful when utility functions are differentiable. Assuming preferences are continuous and locally non-satiated, is there any "fast and loose" rule for pareto efficiency when utility functions are not differentiable?

For example with leontieff preferences $u(x,y) = \min\{ x,2y \}$ in which case there might be a corner solution.


texts:
Sorry if this is a birds and the bees type question.  Where does capital come from?  And I am not talking human capital (which to my mind is skills basically).  I suppose I'm taking about financial capital.

So, I think one can create personal capital by choosing not to consume, i.e. save.  Also I think retained profits are another (and I was wondering perhaps the ultimate) source of capital.

If we look at the capital structure of a company then bank loans, corporate bonds and equity capital are all invested, retained profits are internally generated capital.  External corporate capital, to my mind, comes from household savings.

I know there is the external sector but can we simplify the problem by excluding this?  Let us consider the closed economy only.

I suppose I'm asking for a theory of capital.

I know Marxists have a view and they are welcome to give an updated view (please no re-hash of nineteenth century economic theory, bring it up to date please).

I also think that the Austrian school is critical of Keynesians because the former says the latter have no theory of capital.

Need illuminating in the capitalism facts of life.   Thanks.

I wish there was a tag 'meta-economics' or 'philosophy of economics' to describe this question.


texts: Can't we measure the growth in the income levels of poor?

texts:
Inflation has been a challenging aspect
of policymaking. In such situations growth in
the income levels of the population living below
the poverty level can never be measured
accurately (due to higher infation poverty section will
show higher income) . My question is: Due to higher inflation why cannot we measure growth in the income levels of the population living below poverty line accurately?


texts:
I was just reading my economics notes when I stumbled upon this paragraph:

  Singapore has a very open economy and imports most of its inputs and necessities, which means that MPM is likely to be very high. Also, Singapore has a high savings rate due to its compulsory savings scheme, leading to a high MPS. The high marginal propensity to withdraw means that the multiplier k is small. Hence, any government injection is not likely to lead to a much greater change in national income. This is why government injection is not effective in achieving actual economic growth in Singapore.

I think the analysis given to support why MPC would be small in Singapore and hence, why the multiplier would be small is valid. However, I find the last statement particularly dubious. Even if theoretically, the MPC = 0, k would still be 1, i.e. the autonomous injection by the government will be fully equal to the increase in the real national income. Wouldn't that still mean that an autonomous injection by the government would still be effective in growing the economy, i.e. increase the national output? Because whatever amount forked out by the government would go to increasing the real national income by the same amount and hence, a significant increase in AD would still take place.


texts: Testing for heteroskedasticity in panel data vs time series?

texts:
I watched this video on how to check for heteroskedasticity using Stata, and it helped me a lot. But the data example in the video was time series data.

He used the Bruesh-Pagan test.

hettest dependntvar1 dependvar2 dependvar3 ... dv6

And the output was like

Breusch-Pagan / Cook-Weisberg test for heteroskedasticity
     Ho: Constant variance
     Variables: dependntvar1 dependvar2 dependvar3 ... dv6

     chi2(6)     =  86.56
     Prob > chi2  =   0.0000

The Ho had a p-value of 0.0000 so it had heteroskedasticity.

Does it work the same for panel data?

If not, how do I test for heteroskedasticity on panel data?


texts: Does consumption decrease directly lead to a shift in Aggregate Demand curve to the left?

texts:
Studying macroeconomics I began to wonder about the validity of a certain statement that I couldn't find a clear answer to:

"When Consumption decreases, Aggregate Demand curve will shift to the left."

First I thought this was obviously right. However, considering the components of AD (C, I, G, NX), when consumption decreases that would directly lead to the same amount of increase in Inventory, which results in the increase of Investment (I). So since the decrease in consumption is directly offset by the increase in Investment, Aggregate Demand wouldn't shift, and GDP wouldn't change at all right? At least, this is the answer I came up with.

If this statement ("When Consumption decreases, Aggregate Demand curve will shift to the left.") was one of the choices for an AP Macroeconomics question where you had to choose the right/wrong answer choice, would this statement be true, or false?

I couldn't get my head around this statement, and the above logic (Consumption decrease ---> Investment/Inventory increase by same amount ----> GDP unchanged) was the only one I could think of after pondering for hours.

Is there a clear answer to this statement if this were in an AP Macroeconomics question? Would a decrease in consumption really directly shift the AD curve to the left, or would it remain unchanged due to my logic? I would really appreciate a good explanation! :)


texts: Homothetic preferences from indirect utility

texts:
Consider an indirect utility function on the form

$v^{i}(\textbf{p},w^{i}) = a^{i}(\textbf{p}) + b^{i}(\textbf{p})w^{i}$

Where $\textbf{p}$ is a vector of prices and $w$ denotes income of individual $i$. I want to find the restrictions on $a^{i}(\textbf{p})$ and $b^{i}(\textbf{p})$ such that the preferences are homothetic.

I start by using Roy's identity to find the Marshallian demand for good $j$:

$x_{j}(\textbf{p},w^{i}) = -(\frac{\partial a^{i}}{\partial p_{j}} + \frac{\partial b^{i}(\textbf{p})}{\partial p_{j}} w^{i})/b^{i}(\textbf{p})$

To check for homothetic preferences I find an expression for $\frac{x_{j}}{x_{k}}$ such that it is independent of income. I find that $\frac{x_{j}}{x_{k}} = \frac{(\frac{\partial a^{i}(\textbf{p})}{\partial p_{j}}+\frac{\partial b^{i}(\textbf{p})}{\partial p_{j}}w^{i})}{(\frac{\partial a^{i}(\textbf{p})}{\partial p_{k}}+\frac{\partial b^{i}(\textbf{p})}{\partial p_{k}}w^{i})}$

So (assuming I have not made an error differentiating), the expression is independent of income as long as $\frac{\partial b^{i}(\textbf{p})}{\partial p_{k}} = \frac{\partial b^{i}(\textbf{p})}{\partial p_{j}} = 0$ and there is no restriction needed on $a^{i}(\textbf{p})$ other than it needs to be differentiable.


texts: What would happen if fractional banking was phased out?

texts:
There are negative interest rates now and into the foreseeable future. This must mean there is too much money being offered compared to the demand for loans. Fractional banking acts as a multiplier on the money available for loan takers, so it drives up the supply.

In this extreme situation, perhaps it would be a good idea to gradually phase out fractional banking and return to a simpler and less risky economy.

What would happen to the economy if fractional banking was gradually abolished?


texts: Numeraire negativity to avoid boundary solution

texts:
With quasilinear utiliy, I've seen that often there is no non-negativity restriction imposed on the numeraire good.
MWG justify it as "to avoid dealing with boudary problems", but I cannot see the - probably trivial - step.

Moreover, are there situations when the nonnegativity constraint on the numeraire can be applied without adding restrictions?


texts:
I've been reading and speaking to a number of educated economists and economics PhDs who are against the use of intense mathematics and mathematical proof in economic theory. Specifically I've been speaking to those of Marxist and heterodox persuasion and reading their work in an attempt to become more open minded.

They emphasize that the study of work by classical economists (like Adam Smith, Karl Marx, and David Ricardo) is still relevant and that the practice of how mainstream economics uses mathematics is abusive and is an attempt to fool the masses regarding the "science" economists practice.

I have difficulty understanding this argument. What is a reason to be against mathematics in economics?

Note: I'm pretty mainstream and like how economics is taught and structured. I'm not anti math-in-economics, I just want to know why this is an argument.


texts: Proof of Expected utility theorem with three outcomes

texts:
I am trying to prove the expected utility theorem with three outcomes. The expected utility with $n$ outcomes is rather cumbersome and long in the economics textbook Mas-Colell. But I was hoping that the proof with three outcomes is shorter, however, I am having some difficulty proving it.

Suppose I have three lotteries $x \succeq   y \succeq   z$. We can think of $x$ as the "best" lottery and $z$ as the "worst". The can set  $u(x)=1$ and $u(z)=0$ and then $u(y)=p$ where $p$ is the probability at which a gamble with a $p$ chance of $x$ and a $1-p$ chance of $z$ is indifferent to $y$.

How do I proceed from here to prove the Expected utility theorem?

For $n$ outcomes, the EU states that given $\succeq $ satisfies independence and continuity axioms, there is a utility function $ u:Z\rightarrow \mathbb{R}$ such that if $$p\succeq q\Leftrightarrow \sum_{i=1}^{n}p_{i}u(z_{i})\geq \sum_{i=1}^{n}q_{i}u(z_{i}).$$

Edit: Letting $u(x)= 1$ and $u(z) = 0$ linearly scales the utility function.
So we want to show $$u(y) = u\left ( px + (1-p)z \right ) = pu(x) + (1-p)u(z) = p \text{ by the independence axiom}.$$

Since we have assumed $x \succeq  y \succeq  z$ then it follows that $u(x) \geq u(y) \geq u(z)$, where $p \in [0,1]$. Does this make sense?

I am not sure about the part: $u\left ( px + (1-p)z \right ) = pu(x) + (1-p)u(z)$. Is this a legitimate way of writing the proof for the case of three outcomes?


texts: Formula for feasibility for production versus import

texts:
Is there a formula that can tell us whether it's better for a country to produce something inside (creating tariffs & regulations, subsidies) or it is better to import (lowering tariffs, etc)?

For example, imagine there's some gizmo. It can be bought on the external market for \$100, or it can be produced locally, importing \$50 worth of raw materials, and the end price will be \$150.

What other variables we need to consider here, and how do we make this computation of feasibility?


texts: Why can't I use TMoLM for this bliss point problem?

texts:
I am having difficulty with a particular bliss point problem. The basic issue I have is my approaches seem flawed and I can't tell why.

The equation is

$$U(x,y) = 36x -4x^2 + 6y-2y^2$$

subject to

$$ 5x + 7y=40$$

My first instinct was to use the method of Lagrangian multipliers. But I had this on an exam this afternoon and my professor said I shouldn't use it here. I don't understand why. I tried it using wolfram alpha and also solved it by hand and got the same results

$$(4.78,2.29)$$

approximately as the optimum bundle. But seemingly this isn't the train of thought I was supposed to use.

I then had another idea. I can solve for $$U_x=U_y=0$$ because at the bliss point you should have MU equal to zero.

\begin{align*}
36-8x &= 0 \\
x&=\frac{36}{8}=4.5\\
6-4y&=0\\
 y&=\frac{6}{4}=1.5
\end{align*}

But this lead to different results than just using TMoLM.

My Question:

Can someone explain why TMoLM isn't the right approach? Why does it lead to different results then what my professor suggested and what others have said in the comments?


texts: Why would the price of goods rise up after increased consumption due to the outbreak?

texts:
On the wake of the COVID-19 outbreak, consumption of some goods will increase.
But, my question is why so?

My understanding is that, since aggregate demand for these goods has increased, supply can't keep up and therefore prices will increase to compensate for the increased usage of means of producion.

But, this will be done under the assumption that these suppliers actually want to satisfy the customers who can't buy these products anymore (due to shortage).

What if these suppliers don't increase production? Wouldn't the prices stay the same (with the outcome of people not finding enough goods)?


texts: If foreign direct investment (FDI) in a sector is not stable, for example, if it increases dramatically one year and then declines the following year. If the fluctuation continues over ten years, what can FDI say about that sector? Its development, its problem, etc.


texts: Distrubtion of a test statistic under the alternative hypothesis

texts:
I have been reading Davidson's Econometric theory and methods and I cannot understand one particular paragraph about the distribution of a test statistic.In the paragraph below he says that under the alternative hypothesis if the true $\beta$ is equal to $\beta_1$ then $\hat b= \beta_1+\hat\gamma$. Then he defines $z=(\beta_1+\hat\gamma-\beta_0)/(\sigma^2/\nu)$ and finds the mean and variance as given by 4.04. Why is he doing that? I understand how he gets the mean and variance but I don't get why is he doing that because at the end we dont get a standard normal variable but a variable with mean $\lambda$ and variance 1.

I have been stuck here for a while so any help would be highly appreciated.


texts: How could the economic cost of the world not speaking the same language be estimated?

texts:
While languages are fun and add color and flair to cultures and make the world a more interesting place, they also have a cost. Beyond the monetary costs of translation/editing/proofreading, interpretation, multi-language signage and so on, there are well-documented instances when minor translation errors have caused serious international crises resulting in loss of life and/or of business.

What are some methods of estimating the (current or historical) global cost of language diversity? (I would like to limit the question to just the cost - language diversity also has benefits, such as tourism, or economic activity pertaining to language training.)


texts:
The question is a reformulation of an incomplete version.

Consider the following dynamic dividing a dollar game where agent 1 claims $x(t)$ of the dollar and agent 2 $y(t)$ (paper).

\begin{align}
&\max_{\{u(t)\}^T_{t=0}} e^{-rT}x(T)\\[2mm]
&\max_{\{v(t)\}^T_{t=0}} e^{-rT}y(T)\\[2mm]
\text{s.t. }& \dot x(t) = -u(t)\in[0,1-x(t)]\\
& \dot y(t) = -v(t)\in[0,1-y(t)]\\
& x(0) + y(0) > 1
\end{align}

where $y(T) = 1 - x(T)$ with $T:=\min\{t \in \mathbb{R}_{++} : x(t) + y(t) = 1\}$ and $r > 0$ is the time preference rate. Optimal feedback control is given by $u(t) = r(1-x(t))$ and $v(t) = r(1-y(t))$. This solution is somehow motivated by guess and verify.

Can we obtain the solution by some first order conditions (e.g. maximum principle)?

Transformation of objective function

I tried to somehow transform the objective function into a common functional.
Can someone confirm the following:
\begin{align}
&1 + \int^T_0{-re^{-rt}dt} = 1 + \left[e^{-rt}\right]^T_0 = 1 + e^{-rT} - e^0 = e^{-rT}\\
& x(0) - \int^T_0{u(t)dt} = x(0) + \int^T_0{\dot x(t) dt} = x(T)\\
\Longrightarrow \qquad& e^{-rT} x(0) + \int^T_0{e^{-rt}u(t)(r - e^{rt})dt} = e^{-rT}x(T)
\end{align}

What next?


texts: Why do people buy negative interest rate bonds?

texts:
I get that people buy long term government bonds, because of how safe it is, and if there would be a recession the government would just print more money and could pay it back.

But why would anyone buy a bond, that yields a negative return? If i would just keep my money in fiat, it would just depreciate in the 10 years, but after the 10 years it would still be more than investing it in a safe negative rate.


texts: How does monetary policy affect inequality?

texts:
My thought process here would be that since government bonds are usually held by the richer households, buying of these government bonds would inject a large amount of money only to the richest, thus creating an imbalance.

Though empirical analysis seems to contradict this https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2190.en.pdf

From what I understand, the increase in economic growth created less inequality, raising the incomes of poor households. Does this mean that if growth is controlled for monetary policy would increase inequality or am I missing something?

(Also monetary policy reduces the rate of returns on capital, does this eventually lead to less inequality? I am thinking of Piketty's r-g framework)


texts: What are the alternatives to currency devaluation?

texts:
What are (or are there) alternatives to currency devaluation? Phrased differently, what are the mechanisms that a country could use to make its products more competitive and to boost exports, when:

it is under a currency board?
it has an external1 central bank ?

1. When the local central bank is not allowed to print its own money. For example in the Eurozone , the capital stock of the European Central Bank is owned by the local central banks of all 28 EU member states, however the ECB alone administers monetary policy.


texts:
I want to know under what preferences relation will I not want to consume all of my budget. Because if my preferences are strictly monotonic, strictly convex or convex, even LNS or continuous. I would consume all of my budget. Are they any situations where I would not?

Edit: when I meant preferences I am treating each individual case i.e. if it is LNS it is not convex (necessarily)


texts: I keep hearing about repo rate etc. But this question is not what is the repo rate. It is: What is a definition of 'repo' ?


texts: Dynamic programming with housing consumption and labor

texts:
I try to solve the following maximization problem of a representative household with dynamic programming. However, my last result is not similar to the solution. Could any one help me?

$$\max\limits_{C_{t},H_t,N_t} E_0 \sum_{t=0}^{\infty} \beta^t\Bigg[logC_t+jlogH_t-\dfrac{(N_t)^\eta}{\eta}\Bigg]$$
$C_t,H_t,N_t$ represent consumption at time t, housing stock and working hours, respectively.
Household budget constraint:

$C_t + b_t +q_t(H_t-H_{t-1})=\dfrac{R_{t-1} b_{t-1}}{\pi_t}+w_t N_t+F_t$

$b_t$ denotes bank deposits, $R_t$ is the return from deposit, $q_t$ is the price of housing, $\pi_t$ is the inflation rate and $w_t$ is the real wage rate. $F_t$ denotes profits received from firms.
To sole this problem, I use dynamic programming with these steps:
Step 1: Bellman equation:

I identify $b_{t-1}$ as the state variable, since the household must know the deposit in the previous period. The budget constraint can be rewrite as:
$b_t=f(C_t,b_{t-1},H_t,H_{t-1},N_t,F_t,q_t,R_{t-1},\pi_t)$

Step 1: Setting up the Bellman equation:

$V(b_{t-1})=\max\limits_{C_{t},H_t,N_t} \Bigg\{logC_t+jlogH_t-\dfrac{(N_t)^\eta}{\eta} +\beta E_tV(b_t) \Bigg\}$

Evolution of the costate variable $b_t$, using envelope theorem:

$$\dfrac{\partial V(b_{t-1})}{\partial b_{t-1}} =\beta E_t \dfrac{\partial V(b_{t})}{\partial b_{t}} \dfrac{\partial b_t}{\partial b_{t-1}} = \beta E_t V'(b_t) \dfrac{R_{t-1}}{\pi_t}$$ (1)

Step 2: FOC

First order condition (FOC1)
$$\dfrac{\partial V(b_{t-1})}{\partial C_t}=\frac{1}{C_t}+\beta E_t V'(b_t)\dfrac{\partial b_t}{\partial C_t}=0$$
$\dfrac{\partial b_t}{\partial C_t}=-1$

$\dfrac{1}{C_t}=\beta E_t V'(b_t)$ (2)

Inserting (2) into (1) twice to get the Euler equation, we have:

$$\dfrac{1}{C_t}=\beta E_t \Bigg(\dfrac{R_t}{\pi_{t+1 C_{t+1}}}\Bigg)$$

This result is similar to the solution

FOC2:
$$\dfrac{\partial V(b_{t-1})}{\partial N_t}=-(N_t)^{\eta-1}+\beta E_t V'(b_t)w_t=0$$
Inserting (2), we have:
$\dfrac{1}{C_t} w_t = -(N_t)^{\eta-1}$, This result is similar to the solution

FOC3: The third FOC involves taking the partial derivative of $V(b_{t-1})$ with $H_t$, but I cannot get the same result with the solution:
The solution is:
$$\dfrac{j}{H_t}=\dfrac{1}{C_t}q_t-\beta E_t \dfrac{1}{C_{t+1}}q_{t+1}$$

I only end up with:

$$\dfrac{\partial V(b_{t-1})}{\partial H_t}=\dfrac{j}{H_t}+\dfrac{1}{C_t}(-q_t)=0$$
Did I miss something?
Did I correctly identify the state variable? I suspect that it has something to do with $H_t$ and $H_{t-1}$, but I cannot figure it out


texts: Game theory - Write a maximization problem (with restriction)

texts:
I have a problem with finding a way how to solve this example: We have the company, which has two types of customers indexed as $H$ and $L$. We assume: $θ_H > θ_L$. Quantity$(Q)$ of $H$ indexed customers is in population. Payout of type of the customer$(i)$, which buys products($x$) for a price($p$) is $U_i=θ_iv(x)−p$. Company determines quantity and price for that quantity for every type of a customer ($x_i,p_i$). Costs of the company are $C(x_h,x_l)=x_h+x_l$. Company does not know type of the customer and maximizes its profit.

  Find maximization problem which company solves (with restriction). Solve this example with $v(x)=\ln x$.


texts: Two Endogenous Variables and Two Instruments

texts:
I have a model $Z = \alpha X + \beta Y + \gamma C + \epsilon$. I am interested in the relative effects of $X$ and $Y$ on $Z$. However, $X$ and $Y$ are endogenous. I have identified two instruments $X'$ and $Y'$ respectively. $C$ is an exogenous control variable (fixed effect).

How do I go about estimating the model with these two instruments for the two endogenous variables? Do I need to use 3SLS? I am fairly new to this field. Any resources that address this would be very helpful, thank you.


texts: How do Gini coefficients correlate with the cost of higher education?

texts:
Are there any studies that explore the higher net present value (NPV) of education in countries with higher Gini coefficients?

Additionally, do any of these studies include the impacts of economic mobility as a reducing factor of the NPV or price of higher education?


texts:
According to Protectionism

  (Protectionism) also reduce trade and adversely affect consumers in
  general (by raising the cost of imported goods), and harm the
  producers and workers in export sectors, both in the country
  implementing protectionist policies and in the countries protected
  against

How does protectionism harm the producers and workers in export sectors in the country implementing the protectionist policies?


texts: Is opportunity cost market prices of input goods or income from alternative investments?

texts:
Reading my development economics textbook, I was informed that the opportunity cost of a private investment is the market value of the wages, goods and services used for the investment.

Here's a hypothetical situation: suppose that the firm could invest in an alternative project with the same amount of resources but a higher return. Would it not be myopic to overlook this alternative investment when asserting that the opportunity cost is the market value of inputs? It leads me to wonder why the inputs weren't valued higher. It could be because others in the market don't have access to capital, knowledge of the opportunity or the expertise required to make the investment. Still, why would the opportunity cost not be the income that could potentially be created from the alternative investment? Is a 'market value' approach just a simplification?


texts: Why are there so many migrants in the modern world?

texts:
I want to ask you if there is an explanation in your science of why there are so many migrants in the modern world?

I live in Russia, and after the dissolution of the USSR a lot of people here had to leave their states (former Soviet republics) trying to find a job in Russia (where the economic situation is a bit better in comparison with the other republics). At the same time many people are trying to emigrate from the former Soviet Union to the West.

When looking at the statistics I see that the situation with the employment in the former USSR is not the worst in the world, for example, according to this source, the unemployment rate in Russia is now 5.1%, in Uzbekistan 10.6%, and this is not so bad in comparison, say, with Spain, where it is 24.7%. However, the difference between 10.6% and 5.1% (together with some other parameters, like quality of life, etc.) force many people, millions of them, to seek a job abroad, and this is difficult for them (I am sorry for the normative statements).

So, to specify my question,

  What is the attitude of the economic theory to this? Is this considered as a result of an unsuccessful economic policy, i.e. of some mistakes in the reforms, or this is regarded as normal (maybe, inevitable)? And

  If these were mistakes, then what were these mistakes?
  If this was normal, then I suppose there must be an understanding in your science of what people should do in this situation. How does the economic theory expect the jobless people to react? Are they supposed to leave their countries, or wait, or die? If they are supposed to leave, then there appears a contradiction between economics and politics, since usually emigration is very, very difficult, often impossible because of the political reasons. How is this contradiction supposed to be resolved?

From what I see in internet I got an impression that the situation in the former USSR is not unique, there are many other countries with similar problems, so, to tell the truth, I don't understand why people here insist that I should specify the country I am speaking about. If this is important, I have in mind the situation in Central Asia, i.e. countries like Uzbekistan, Tajikistan and around.


texts: Is the money market equilibrium interest rate the same as the IS-LM equilibrium rate?

texts: If IS-LM equilibrium interest rate is, let's say, 5%, does it also mean that the money demand and supply equilibrium interest rate would also be 5%?


texts: Is a small business owner without employees a capitalist?

texts:
If a man has a small business where he is the only employee or if he is self employed, that makes him a capitalist?

For example a freelance writer. Or a subsistence farmer that only produces enough to feed himself and his family. Or a subsistence farmer that makes a little income on top of feeding himself and his family. Is there an income threshold that makes them capitalist?


texts: Does easy credit in a region cause property to be more expensive?

texts: Does easy credit (e.g. lower minimum down payment, lower interest rate) cause housing prices (purchase, rent) in that area to be more expensive? Intuitively, this seems to be the case, because the availability of credit means more people can be a potential buyer, which drives up demands, which should increase price. Has there been an empirical research that backed this up or refuted it?


texts: The stochastic discount factor $M_t$ in a simple RBC model

texts:
In these class notes, page 3, the author defines the stochastic discount factor as $M_t=\beta^t\frac{E_0(u'(C_{t+1}))}{u'(C_{0}))}$.

I'm trying to find the rationale behind it.

A cash flow at period t, is usually discounted by $\prod^t_{i=0} \frac{1}{1+r_i}$ (if I'm not mistaken). I was thinking of using equation (5) - in the notes - where we have that $\frac{1}{1+r_t}=\beta\frac{E_t(u'(C_{t+1}))}{u'(C_{t}))}$.

However, since $\frac{E_{t-1}(u'(C_{t}))}{u'(C_{t})}\neq 1$, I'm not exactly sure how to proceed.

Also, just below equation (10), the author states that $E_t(M_{t+1})=\beta\frac{E_t(u'(C_{t+1}))}{u'(C_{t}))}$. How is this possible? Isn't the tower property exactly the inverse: $I_0\subseteq I_t\implies E(E(M_{t+1}|I_t)|I_0)=E(M_{t+1}|I_0)$ ?

Any help would be appreciated.


texts: What are taxes for since law forbids printing of money?

texts: This question bothers me for a long time: why government keeps up with the taxes instead of with printing money? This would decrease its operating costs, simplify law and generally raise comfort of existence of all people. Why I don't hear nobody speaking about such idea?


texts: Is there an economic analysis of the rationality of buying lottery tickets?

texts:
It's quite clear that the expected return on a lottery ticket is less than 1.

However, I think it can still be argued that buying lottery tickets is still a economically rational decision by consumers.

There are a few lines of reasoning:

The consumer isn't just buying an expected payout, they're buying 'a dream'. Much like watching a fantasy movie or reading a book is an economically rational decision, (even though the story isn't 'real'), the thoughts of 'what would I do if I won the lottery' is a commodity that the consumer is buying.
The value of a lottery payout is worth more than its face value. When analysing the expected return on an ordinary decision, we assume that the return is given in the same context. (For example when Bob is choosing between Stock A, Stock B or saving his money in the bank, regardless of which payout he gets, the rest of his circumstances stay the same). Winning the lottery means, for most us, that we'd quit our jobs, which is worth more than just the payout itself.
It also needs to be considered that the cost of the lotto ticket is often mitigated by that it can also be partially considered as charity.

The question is - is this subject well considered in economics?

Perhaps a good answer would iterate the economic reasoning of buying lottery tickets.

NB. I'm planning asking a separate follow up question regarding point two, question at what lottery payout the expected return increases.


texts: Why is Pareto efficiency not always equitable or equilibrium?

texts:
Just for information. I think we can agree on that a Pareto optimal allocation is where you cannot put someone in a better position without making someone else worse off. I know that any competitive equilibrium is Pareto optimal, but any other form of equilibrium is not always Pareto optimal. Why is that?

Given an example, if a firm's demand for labour is equivilant to the labour supply by consumer, there is an equilibrium. But is it not also Pareto optimal or does that depend on the equation of demand for labour and labour supply?

Graphically speaking; will an equilibrium between two factors be the intersection, whereas a Pareto optimal is when the slope is the same for both factors?


texts: What type of protectionist measure is this?

texts:
I am currently studying an economics case study on protectionist measures but came across a measure which I have not heard off before, one which research has not shed any light on. The case study gives examples of protectionist measures from a range of countries, the one I am confused about reads:

  Fuel for official cars in Argentina can only be bought from state-owned oil companies

The protectionist measures such as tariffs and quotas do not seem to apply here. Further research gives this list of protectionist measures, but this doesn't appear to fit in one of those categories either.

Several Google searches have turned up no results either.

My Question: What type of protectionist measure is the example above?


texts: Market equilibrium and pareto efficiency

texts:
How can I prove that the equilibrum point $D(p)=S(p)$ is pareto efficient?

The definition of pareto efficient: there is no way to make any person better off without hurting anybody else

$D(p)$ is the market demand curve and $S(p)$ is the market supply curve

I´m working with Hal Varian intermediate microeconomics and he proves that any amount less than the equilibrium amount cannot be Pareto efficient :

At any amount of output less than the competitive amount $q^*$ there is someone who is willing to supply an extra unit of the good at a price that is less than the price that someone is willing to pay for an extra unit of the good. If the good were produced and exchanged between these two people at any price between the demand price and the supply price, they would both be made better off. Thus any amount less than the equilibrum amount cannot be Pareto efficient, since there will be at least two people who could be better off

But I´m having trouble proving that the equilibrium point is pareto efficient

I would really appreciate if you can help me with this problem. Any comments, or suggestions would be highly appreciated


texts:
Can anybody give an intuitively explanation for the following problem?

  Let $\succeq$  be a preference relation on a set X. Define I(x) to be
  the set of all y ∈ X for which y ∼ x. Show that the set (of sets!)
  {I(x)|x ∈ X} is a partition of X, i.e.,

  For all x and y, either I(x) = I(y) or I(x) ∩ I(y) = ∅.
  For every x ∈ X, there is y ∈ X such that x ∈ I(y).


texts:
In a paper by Eric Leeper he says:

  For example,
  a contractionary open-market sale of government bonds raises
  nominal interest rates, including yields on government bonds. If
  the higher debt service is permitted to flow in to more rapid growth
  in nominal debt with no prospect of eventually higher taxes –
  or primary surpluses, more generally – then bond holders will
  perceive that their wealth has increased and seek to convert that
  wealth in to purchases of goods. This higher aggregate demand will
  ultimately raise the price level.

On a theoretical level I seem to understand what he is saying but I do have some questions regarding the operation from practical perspective.

Say in period $t-1$ I own some government bonds. In period $t$ the central bank performs the contractionary OMO. So they lower the price of government bonds but raise its yield. This will increase the debt service cost for the government and if they decide to fund it by selling more bonds, I will experience a positive wealth effect.

I think I'm confused because I don't quite understand the specifics of bond trading. So the bonds that I own in period $t-1$, is their yield flexible? I.e, once the CB performs the OMO and raises yield, will the bonds I already own also receive this new, higher yield?

Also, in period $t-1$, when I bought the bonds, I paid a certain price. Then the CB starts selling bonds, thus lowering its price while raising yield. The higher debt service cost results in the government issuing more bonds, surely this lowers the bond prices further? So when I eventually sell the bond, I should have lost money?

What am I missing here?


texts:
I've been reading about the history of the IMF recently, and it strikes me as odd that despite the problems that arose with the gold standard (Germany in the 1920s, Fed cutting money supply during the Depression), countries would agree to effectively peg their currencies to gold (via the US dollar).

It doesn't seem to me that there were any substantive differences between the Bretton Woods regime and the gold standard, as seen in the early 1970s, when Richard Nixon was forced to remove the US Dollar from its gold peg. I'd like to know why economists thought Bretton Woods was a good idea.


texts:
There was an exercise question regarding two players with two types each in a game theory class.
The two players were assigned to do a team project together.
The utility from doing the team project is 10 for both players. The cost of doing the project for player 1 (C1) can be either 5 or 15, and the cost of doing the project for player 2 can also be either 5 or 15.
and the probability that the cost will be 15 is 1/3 for both players.

Now the professor said there were three Bayesian Nash Equilibria. Among the three two were quite similar.
One equilibrium was
Player 1 with high cost type - not do project
Player 2 with high cost type - not do project
Player 1 with low cost type - not do project
Player 2 with low cost type - do project
and another Bayesian equilibrium is the same thing as above with the Player 1 with low cost type and Player 2 with low cost type swapped in terms of their action. And thankfully I understood how the two equilibria were derived using expected utility comparison.
The problem I have right now is with the third equilibrium. The teacher mentioned that there is a third equilibrium existing here using 'Mixed Strategy' but that's all he mentioned and he didn't go over it. How can we solve for the Mixed Strategy Bayesian Nash Equilibrium for this kind of question? I've done mixed strategy for perfect information, but I have no idea how to do it for incomplete information Bayesian Nash Equilibrium. I would appreciate some explanations on how to solve for the mixed strategy Bayesian nash equilibrium using this activity. Thanks.


texts: Comparing relative change for different base value

texts:
I need to compare change in employment size for a sample of companies. I could use percentage change, however, the problem with it is that when the base is small, a small absolute change result in a large percentage change.

For instance, company A and B employment is 10 and 10,000 respectively. assuming both company increase their employment by 5. the percentage increase is 50% for A and 0.05% for B.

I recall reading somewhere that there are some measures that take into account the different initial value when measuring changes (e.g., multiplying relative change by a function of absolute change). However, I can't recall where I read it or the name of the indicator.

Anyone is aware of such indicator or is able to propose a solution?

TIA


texts: How does the Fed's stimulus push stocks markets higher?

texts:
I read that the Fed’s stimulus last March has contributed to a spectacular rally in stock markets. And indeed S&P500 has increased a lot since March.
But how does the mechanism work? How does the fact that central banks are buying more US treasuries help the stock market to rally?


texts: What is the public spending / government expenditure share of GDP in Europe?

texts:
I have found data that seems to be contradicting:
statista gives public spending at country level between 40% and 60%, but
eurostat gives an aggregate figure of about 20%, as shown in the following pie chart:

Which is it? Is there a difference in the definition of public spending and general government expenditure?
Edit: I am comparing different years, 2017 and 2019, but the percentage change of each category is relatively stable over the period, giving the same order of magnitude.


texts:
I can't appreciate the red phrase. Pls see the question in the title. Why can't farmers simply sell their wheat ahead of time to buyers who are capable of storing this wheat, rather than inducing speculators to long the farmers' short positions? Why do farmers need $\color{red}{\text{short hedge}}$?
Zvi Bodie, Alex Kane, Alan J. Marcus. Investments (2018 11 edn). pp. 768-769.

Normal Backwardation

This theory is associated with the famous British economists John Maynard Keynes and
John Hicks. They argued that for most commodities there are natural hedgers who wish
to shed risk. For example, wheat
farmers desire to shed the risk
of uncertain wheat prices. These
farmers will take short positions to
deliver wheat at a guaranteed price;
$\color{red}{\text{they will short hedge. To induce
speculators to take the corresponding
long positions}}$, the farmers
need to offer them an expectation
of profit. They will enter the long
side of the contract only if the
futures price is below the expected
spot price of wheat, for an expected
profit of $E(P_T) − F_0$. The speculators’
expected profit is the farmers’
expected loss, but farmers are
willing to bear this expected loss to
avoid the risk of uncertain wheat
prices. The theory of normal backwardation
thus suggests that the
futures price will be bid down to a level below the expected spot price and will rise over the life of the contract until the maturity
date, at which point $F_T = P_T$.


texts: Is Myerson's Lemma valid for piecewise linear allocation functions?

texts: In Tim Roughgarden's fantastic course on Algorithmic Game Theory, he begins the course by introducing basic mechanism design, and Myerson's Lemma. He then proves that Myerson's Lemma is valid for piecewise constant allocation functions. I would like to know if a proof also exists for piecewise linear allocation functions.


texts: Using the Dividend Discount Model when no current dividend exists?

texts:
Say a company is doing an IPO and we expect them to start paying dividends in 5 years?
I understand how we could use the Dividend Discount Model to predict their stock price 4 years from the IPO. But what about the day of the IPO?

How can we use the Dividend Discount Model to value this stock before it pays dividends?


texts:
My understanding:
 Normally, selling a product has an increasing marginal cost per unit produced. Very often this increases more and more due to poor allocation of resources (diminishing returns). This sets up the firm's graph where MR=MC and gives them a quantity to produce and price to charge.

The question(s):

However, what happens when the product is software?
Selling another product doesn't cost the firm anything, as all (most) of the costs are in development (with the exception of upkeep and bug fixes).
How do they determine what price to charge?
Would there be any reason to limit quantity?

Looking at video games specifically, Fortnite and Apex Legends have cost hundreds of thousands or millions of dollars to create then release free to play, with extra incentives to purchase if the player is invested in the game. Would this business strategy work anywhere else? Why or why not?

Thanks in advance, feel free to answer as few or many as possible, I just find this topic really interesting.


texts: Which of Anscombe-Aumann's axioms imply the Sure-Thing principle?

texts:
Consider an Anscombe-Aumann setting, and assume that a preference relation satisfies all original Anscombe-Aumann's axioms (rationality, continuity, independence, and monotonicity).

If we restrict attention to pure horse races (that is, acts without any objective uncertainty), the Anscombe-Aumann model boils down to a Subjective Expected Utility representation a la Savage. Therefore, over pure horse races, the decision-maker satisfies all of Savage's axioms, notably the Sure-Thing Principle (P2 in Savage's terminology).

I fail to see the direct connection between Anscombe-Aumann's axioms and the Sure-Thing Principle. Does anyone see how the Sure-Thing Principle is implied by Anscombe-Aumann's axioms? In particular, does it result from Independence only, or are Independence AND Monotonicity required?


texts: How to dynamically update/calculate the price if we have the following values?

texts:
Need to update/calculate the price, the given values are:

Reserve (Stock) (higher the price can be lower)
Cost (the higher, the price can be higher)
Sales Speed (the higher, the price can be higher)
The pieces were sold at the current price (the higher, the price can be higher)
Views (the higher, if the Add to Shopping Cart or Buy now is lower, the price can be lower)
Add to Shopping Cart (the higher without buy, the price can be lower)
Buy now (direct buy) (the higher, the price can be higher)
Success Purchase (the higher, the price can be higher)

What my idea is: the price can be calculated independently in some values e.g: 1, 2 and 3. and about others can be calculated together, because they have relationship with each other, e.g: Views and Add to Shopping Cart or Add to Shopping Cart and Buy now which Buy now indicates the price can be higher etc...
So I do not know if the idea is correct, or if there will be more better way to calculate the price from these values.

For example:

Current item price is: 150$
Cost is: 100
Reserve (Stock) is: 1000 peaces
Sales Speed is: 12 peaces/day
The pieces were sold at the current price is: 70 peaces
Views is: 950 times
Add to Shopping Cart is: 150
Buy now is: 10
Success Purchase is: 70

Now we need to update the price in case of these values to have the fairer price for this item.


texts: Current Value Hamiltonian VS Present Value Hamiltonian in Economics

texts:
I've been looking at a number of optimal control problems and have been wondering under what conditions one should use the current value Hamiltonian over the present value Hamiltonian.
Does it depend on the specific result we seek to derive? (pick whichever you want) or does it depend on the nature of the problem?


texts:
Universal Classification Code (UCCs) are six digit codes that identify items or groups of items. Here are some UCCs:

190903 Food and non-alcoholic beverages at restaurants, cafes, fast food places on trips
190904 Food and beverages purchased and prepared by CU on trips
200900 Alcoholic beverages at restaurants, cafes, bars on trips 210110 Rent of dwelling
210210 Lodging away from home on trips
210310 Housing for someone at school
210901 Ground rent - owned home

They are for example being used in the consumption expenditure survey to identify consumption items.

Is there any way (e.g. existing bridge data base) to link these UCC to the sector of production? For example, NAICS?


texts: Are things any better in what society considers "third world countries" as they were years ago? If things are better, how did they improve and why?

texts:
For years I've seen non-stop commercials of countries in the continent of Africa showing kids who live in sewage huts, parents are dead, war gangs and criminals rule their lives.  Like in Captain Philips how those Somalia pirates were forced to do what they did because of where they lived. They were forced by criminals threatening their lives.  Didn't the USA make their countries dry out and collapsed like many Middle Eastern ones?

My professor showed a video made in Africa showing how 1 in 3 Africans are actually middle class.  They have cells, cities, even women Presidents at times.  So are things than better than in the past and if so why?


texts: People pathologically hoard so much cash that they impoverish the entire nation

texts:
"If a man has an apartment stacked to the ceiling with newspapers we
  call him crazy. If a woman has a trailer house full of cats we call
  her nuts. But when people pathologically hoard so much cash that they
  impoverish the entire nation, we put them on the cover of Fortune
  magazine and pretend that they are role models." - B. Lester

My aunt posted this to her facebook page. She believes that people are poor because some other people are rich. I know that is totally fallacious, but I don't know how to explain it to her. Can any one help me to explain it to her?


texts: Just how much calculus is involved in the study of economics?

texts:
I'm a sophomore at a community college that is set to transfer to the University of California as an economics major. It's required that I took Calculus 1 and Calculus 2, but not Probability and Statistics – which I think is strange. In Principles of Microeconomics and Principles of Macroeconomics, I never really used any calculus, but then again, those are introductory classes.
Tldr
I am terrible at calculus, but I love economics. When I get into the more advanced classes, is calculus going to be more present? If so, then I think I might have to rethink my major.


texts: Why is Uber worth almost as much as Boeing?

texts:
At $68 billion, Uber has a higher valuation than GM, Ford, and Honda.

According to Microaxis, Boeing is currently valued at around $87 billion.

Why is Uber worth so much? I would think that judging the value of companies would be similar to judging the value of employees. People often make the case that your wage/salary should reflect how easily someone else could do your job. (See this question for example on why celebrities are worth so much). Along those lines, it is hard for me to imagine how anyone could replicate the engineering and infrastructure of a behemoth like Boeing, in order to provide equivalent transportation or defense capabilities without taking many years, many talented employees, and billions of dollars to get up and running.

However, I could imagine 1 engineer fresh out of college making an app identical to Uber in only a year. Additionally, there would be no cost for the consumer to download that app, and try using it (there may not be many drivers, but there's also not a large opportunity cost to opening the app, checking for drivers, and closing the app if there are none).

So how could Uber be valued so highly? If it disappeared tomorrow, it could be easily replaced quickly without much start up time, and it could be adopted just as easily by drivers and users (the very same ones working for Uber). If Boeing disappeared tomorrow, everyone would be in trouble.


texts: Nominal Values or Real Value & stationary

texts:
I'm going to estimate a time series regression which has consumption as a dependent variable.
My data source give it in nominal form and unfortunately there are no other sources. It is
Question :
Can I run a TS model with nominal values ?
If not, what should I do ?
I think there are 2 possible ways :
First: Change variable form to Real form by divide it to CPI(consumer price index). Then change it to a stationary form (e.i Log form) and enter it in the model.
Second: Change it suitably and correctly to become a stationary variable. e.i Log form
My question clearly is ; It is possible to use a nominal variable in a time series regression? (regardless of stationary issues)
Please explain which one is right to be done?


texts: Books/Papers on Macroprudential Regulation

texts: I am looking for some good introductory papers or possible books on macroprudential regulation.


texts: What's wrong with have a 'one second tick' on stock market trades, to prevent high frequency trading?

texts:
Part of how high frequency trading works, is by taking advantage of millisecond advantages over other traders in communicating with the stock exchange.

To gain these advantages, high frequency traders have moved their servers closer to the stock exchange's server, or have rebuilt a a Chicago - New York IP cable to be straighter and thus reduce latency by milliseconds.

To create a 'fair playing field', traders can put all their servers in the same building, and each be given the same length of cabling.

HFT has been criticised essential for giving the high frequency traders an unfair advantage.

My question is - why not just make the stock exchange work on a one second 'tick'. ie. during that second trades are queued up, and on the tick, they are all executed simultaniously.

This would prevent any - 'see other people's trades and buy them before they do' type trades.


texts: If women are paid less for the same work, why don't employers hire just women? Do employers decide to lose profits just out of sexism, in feminists' and researchers' opinion? It doesn't make sense to me. In the free and competitive market, if people earn less, it means they generate, or are expected to generate, less added value (for example, because they are less educated). Am I wrong?


texts: Why (Im) is gross(before personal tax-BPT) rate of return(ROR) by saver?It should be net ROR & APT, as SS' curve is after personal tax is imposed

texts:
![the  image was taken from public finance book by Musgrave and Musgrave
]1Pave 156(fig. 9.5)


texts: Increased production costs associated with increased output produced? Why do firms have prices increase with the SRAS or Supply Curve?

texts:
In my textbook, it said (this is for SRAS and AD, but I'm also going to apply this a bit fo microeconomics.. sorry for mixing, but my question applies in both ways, I believe) "The average price level will need to increase too, from P1 to P2, to allow firms to cover the increased production costs associated with increased volumes of output"

In my opinion, the price does not need to increase to make up for an "increased cost associated with increased quantity supplied/output"

When I was doing some math regarding all of this I realized that for a firm to "cover its cost" (maintain the same amount of profit as before) it could actually lower prices and then maintain the same amount of profit (due to the increase in quantity counteracting my hypothesized lowering of prices)

Here is my math, which has allowed me to come to this conclusion:
A firm sells 10 tomatoes for ¥10. Revenue is (¥10x10) = ¥100. Each tomato costs ¥5, so I do (¥5x10) to get ¥50 as a cost. Thus, profit is ¥100-¥50= ¥50. Farmer wants to maintain his profit of ¥50.... let's say now he increases his quantity supplied or output to 20 tomatoes. the cost is now (¥5x10)x2 = ¥100 (I did x2 cuz its 20 tomatoes now). For the farmer to maintain profit of ¥50 he prices the 20 tomatoes at ¥7.50 (less than previous price of ¥10), so that Revenue(¥7.50x20=¥150) and Cost(¥5x10x2=$100). Thus ¥150-¥100 is ¥50 for profit. profit maintained, but price was lowered to ¥7.50
I know I'm wrong, but I'm not able to understand the logic behind this. If anyone could help me with my specific questions or direct me to any online resources, that would be awesome. Thank you!


texts: Existence of competitive equilibrium between max utility function and min utility function

texts:
u1(x1,y1)=max(x1,y1)
ω1=(0.2,0.2);
u2(x2,y2)=min(x2,y2)
ω2=(0.8,0.8)
The utility functions for two individuals and their endowments are given above for a two person two good economy. My question is that is there any competitive vector of prices that gives rise to competitive equilibrium in the economy?
I used the Edgeworth box analysis and determined that the indifference curves for both the individuals will coincide completely and will be L shaped for individual 2 and an inverted L shape for individual 1. However, individual 1 will always look for a boundary optimum while the optimum for individual 2 will be at the kink of the L shaped indifference curve.
I assumed good 2 to be the numeraire good with price = 1, and assumed the price of good 1 is simply p. So income of individual 1 = 0.2p+0.2 and income of individual 2 = 0.8p+0.8.
I also inspected three cases
CASE 1
When p>1.
Demand for good 1 by individual 1 will be zero, because good 2 is cheaper. Demand for good 1 by individual 2 = (0.8p+0.8)/(1+p).
I equated demand and supply, and found that the price was coming out to be negative, which is an impossibility so I ruled out this case.
CASE 2
When p<1. Demand for good 1 by individual 1 = (0.2p+0.2)/p and by individual 2 = (0.8p+0.8)/(1+p).
I equated demand and supply, and found that the price was coming out to be negative, which is an impossibility so I ruled out this case too.
CASE 3
When p=1. Individual 1 will either demand zero units or all 0.4 units that he can afford at that price. Individual 2's demand, meanwhile, will be 0.8 units of good 1. I got stuck here. It seems apparently that a competitive equilibrium does not exist. Am I wrong somewhere?


texts:
I was reading this article on power laws in economics.

If you look at figure.5 on page 11, you come across an interesting note.

  Notes: Left panel: The CEO compensation is the ex ante one, including Black–Scholes value of options
  granted. The slope is about 1/3, a reflection of Roberts’s law: $Pay $~$Size^b$
   with b ≃ 1/3. Right panel: The
  pay–performance sensitivity (PPS) is the Jensen–Murphy measure: by how many dollars does the CEO
  wealth change, for a given dollar change in firm value. The slope is about −2/3, so that PPS ~ Sizeb−1
   with
  b ≃ 1/3. The congruence between the scalings is predicted by the Edmans, Gabaix, Landier (2009) model.

I found the source of such a law on the works cited page:

  Roberts, David R. 1956. “A General Theory
  of Executive Compensation Based on Statistically
  Tested Propositions.” Quarterly Journal of Economics
  70(2): 270–94.

However I am yet to find an open source document which explains the derivation of such a law.

If anyone knows of a source Id appreciate it.


texts:
How do you interpret the Lerner Index?

I ask because at Uni. we have been told that, for monopoly, when the producer max. his profit, he sets the price such as the demand is elastic and the lerner index is between (0,1). BUT that if elasticity increases, then the index decreases and the market cap is higher. We have been told this at two different classes, but yesterday, talking in general, we have been told that when LI increases, then market cap is higher.

Thus, I don't understand how to analyse LI anymore.

Could you explain it to me, please?


texts: How can I tell who are major investors in an asset management group and their associated funds?

texts: I am trying to determine which individuals/organizations are the largest investors in Netflix, but when I look at the list of top shareholders, they are all investment management groups.  Investment management groups are  not investing their own money, they are investing the money of others, usually through investments in their associated funds.   Is there any way of seeing who are the major investors in investment groups or their associated funds?


texts: Proof monotonicity on Blackwell sufficient conditions

texts:
I need to prove monotonicity assumption on Blackwell’s sufficient conditions for a contraction, that is:
Given the operator T defined as
$(Tf)(x) = sup [F(x,y)+bf(y)]$
I need to show that $f\leq g\Rightarrow Tf\leq Tg$
My first approach is:
$F(x,y) + bf(y)\leq F(x,y) + bg(y)$
$sup F(x,y) + bf(y)\leq sup F(x,y) + bg(y)$
$T(f)(y)\leq T(g)(y)$
Am I missing something? Is this proof too simple to fully demonstrate the statement above?
Appreciate your help.


texts: Suppose a government is in debt, why will there be inflation if it makes more money and pay other countries borrowed money back?


texts: Practice question on Correspondences and maximization

texts:
We're learning about Theory of the Maximum. I tend to struggle with correspondences in this context, so I'm trying to work through some practice questions. I will start with some general notation of a canonical maximation problem (which can be found from Rajiv Sethi's lecture here, but reposted below so you don't have to go look).
Parameter set: $\Theta$
Choice set: $X$
Objective function: $f: X \times \Theta \to \mathbb{R}$
Constraint correspondence: $\Gamma: \Theta \rightrightarrows  X$
Solution Correspondence: $\Gamma^*(\theta):= argmax_{x \in \Gamma(\theta)} f(x,\theta)$
The maximized value of the objective function: $f^*(x, \theta) = \max_{x \in \Gamma(\theta)} f(x,\theta)$
phew.
Ok, now consider the following maximization problem parametrized by $p \in [0,1]$:
$\max_{(x_1, x_2) \in \mathbb{R}_+^2} x_1 + 5x_2 $
s.t. $px_1 + x_2 \leq 1$
I know that we can write this in the form: $f(x,p) = x_1 + 5x_2$ and $\Gamma(p) = \{(x_1,x_2) \in \mathbb{R}^2_+: px_1 + x_2 \leq 1 \}$. I also know that at $\Gamma(0) = \{(x_1,x_2) \in \mathbb{R}^2_+: x_2 \leq 1 \}$ is not compact-valued, and thus we cannot apply the theorem of the maximum.
In the solution to this question, I see that the optimal policy correspondence is
$\Gamma^*(p) = \begin{cases}
\emptyset & \text{if} \: p = 0 \\
\{(1/p,0)\} & \text{if} \: p = (0, 0.2) \\
\{ (x_1, x_2) \in \mathbb{R}_+^2: 0.2x_1 + x_2 = 1 \} & \text{if} \: p = 0.2 \\
\{(0,1)\} & \text{if} \: p = (0.2, 1]
\end{cases}$
At $p = 0$, $\Gamma^*$ is empty-valued. For $p>0$ it is compact-valued and upper hemicontinuous. It fails to be lower hemicontinuous at $p=0.2$. Substituting $\Gamma^*(p)$ into the objective function, the value function is $f^*(p) = \max \{1/p , 5 \}$.
I'm not sure how, mechanically, to get to the optimal policy correspondence, as we didn't do anything like this in class, and I'm finding reading materials scarce. I would really appreciate if someone could walk me through the steps as if I'm a 5 year old.


texts: What is the Economic Rationale for Discounted Early-Bird Parking?

texts:
Most urban parking structures/lots in the US seem offer so-called "early bird" discounts for parking, where a substantially discounted flat rate applies to customers entering before a certain cutoff time (typically 9 or 10 AM) and exiting before late evening (typically 6 or 7 PM).

The practice is nearly universal, so there must be some economic advantage to it (unless the various players are locked into some kind of weird Nash equilibrium).

My best guess is that this is a kind of price discrimination targeting people commuting in to work, but price discrimination usually soaks business customers in order to offer discounts to discretionary customers, and this situation is the opposite, so I'm not sure that's it.

It could be that it's especially valuable to kick out a large number of vehicles by early evening so that a "second crop" of customers can be brought in. But evening rates (at least when no special events are being held nearby) are also typically discounted.

It could also relate to minimizing turnover costs and traffic congestion. But turnover costs for a parking lot (especially an automated one) seem to be a tiny fraction of the overall cost.

And it could be the result of a price war between suppliers. Knowledge of a particularly cheap nearby lot would tend to spread quickly among coworkers.

Is there a definitive slam-dunk reason these discounts exist?

EDIT: Another guess is that commuters are high-knowledge customers and shoppers are low-knowledge customers and so it makes sense that the latter would tend to get charged more.


texts: What are the mathematical prerequisites to understand Whinston and Green's "Microeconomic Thoery"?

texts: I've completed my under graduation in economics where I used micro books like Nicholson and Snyder's Microeconomic Theory and Hal Varian's Intermediate Microeconomics. I am comfortable with topics like Differentiation, Integration, Matrices, Determinants, Functions, Theory of Equations, Limits, Continuity, Sequence & Series, LPP, First order and second order ODE and other basic stuff taught at undergrad level in Ancillary course. For the Post Graduate course in Economics I'll be required to study from Whinston and Green's Microeconomic Theory. After flipping through the pages of it I realized that it contains a lot of mathematical symbols that I don't understand. So please suggest essential topics from mathematics(along with references suitable for self study) which will enable me to understand this book.


texts: Are rational expectations in economics purely forwards looking, or can they have backward looking components?

texts: Are rational expectations (Muth, Lucas, Kyland and Prescott) in economics purely forwards looking, or can they have backward looking components?


texts:
I'm trying to determine my hyperbolic discount function for a given set of my own time preferences. I have determined that I am indifferent between {$}1000 today and {$}1004 tomorrow; {$}1000 today and {$}1020 in a weeks time; {$}1000 today and {$}1040 in a months time and {$}1000 today and {$}1050 in 2 months time. I want to determine if this discount rate is hyperbolic.
Hyperbolic discount functions can be described mathematically as
$$g(D)=\frac{1}{1+kD}$$
where D is the delay and $k$ is the parameter governing the degree of discounting.
Am I right in saying that $k$ can there be found by calculating the percentage difference of the dollar amounts?
I would therefore have 0.004 corresponding ot 1 day; 0.02 corresponding to 7 days; 0.04 corresponding to 30 days and; 0.05 corresponding to 60 days.
Plugging these into the hyperbolic discount function, I get,
$$g_1(D)=\frac{1}{1+0.004(1)}=0.996$$
similarly,
$$g_{7}(D)=\frac{1}{1+0.02(7)}=0.877$$
$$g_{30}(D)=\frac{1}{1+0.04(30)}=0.455$$
$$g_{60}(D)=\frac{1}{1+0.05(60)}=0.25$$
Is this approach correct? Looking at my results, it seems that my hyperbolic discount function declines very quickly in later the later period (30 - 60 days), and I'm not 100% sure if I have interpreted $k$ correctly.


texts: Pricing of a call option in a one period binomial model

texts:
You are given a 5% call option worth \$2.66. The strike price, k is $41.00. S(0)=40, Sd= 35 (i.e the lower price of the stock at t=1) find Su (i.e the high price of the stock at t=1).

How would this be done? I know Cu= Su-\$41. C(0)=\$2.66 and I have something written in my notes that c(0)= B/(1+r) +ΔS(0), but I'm not sure what B is here. I assume to Find Su I need to first find Cu, but I'm not sure how to do this from the given information. Any help is appreciated.


texts: What is the difference between preferences lacking "completeness" and being indifferent?

texts: If two preferences are complete, at least one must have a relationship to the other.  If neither has a relationship, doesn't that mean that the consumer doesn't care which one he/she purchases?


texts: Did the Marshall Plan cause Western Europe's economic expansion after WWII?

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It is widely accepted, that the Marshall Plan had a major role in the economic recovery of Western Europe after the end of the Second World War.
The reality is that the total economic support was less than 7% of the 1946 GDP (PPP) of the region. How could that have any statistical significance?

In the period between 1943 and 1945, the GDP (PPP) of Western Europe fell by more than 19%. So, was that caused because there was no Martial Plan then? :)

Before the Keynesians jump on the multiplier effect bandwagon, I would point out, that the US quantitative easing after the 2008 economic crisis was 3.5 trillion USD, which is 20% of the 2013 US nominal GDP.


texts: How would one take advantage of this arbitrage opportunity?

texts:
I have a quick question about how arbitrage works. Let's say that there are two investments:

Invest in a two-year zero
Invest in a one-year zero and then reinvest into a forward contract from year one to year two.

The no arbitrage principle theoretically states that since one could make unlimited money, these two investment strategies must be priced equally.

I am a little confused as to how one would take advantage of this arbitrage opportunity. Suppose investment 2 costs more than investment 1. I suppose I would have to somehow borrow money and sell investment 2, take that money and put it in investment 1, and then pay back investment 2? I'm really not sure who I would be borrowing from and how I would be able to sell. If someone could give me a step-by-step process on how to take advantage of a hypothetical arbitrage opportunity, that would be greatly appreciated.