texts: Does the Prospect Theory value curve change according to reference wealth size?

texts:
After reading "Thinking Fast and Slow" and half a day of internet search on this topic I resort now to asking this question here.

Prospect Theory seems to only attribute value to changes in wealth. The reference point in wealth is only used to calculate the change in wealth. The change is then valued according to a value function where losses weigh heavier than gains and both have diminishing marginal utility (see figure below). It seems to me however that the absolute value of the reference point matters, but is ignored.

The diminishing marginal utility of wealth from expected utility theory is still a valid concept, as is the utility of change of wealth from prospect theory. In my view they should be combined. Losses weigh heavier than gains and the size of your reference wealth influences how you weigh the loss/gain.

In other words, this is a typical value function in Prospect Theory:

I think it needs a third axis for the reference wealth value. Higher reference wealth values lead to flatter curves while lower reference wealth values lead to taller curves. A rich person has a different value function than a poor(er) person. They value the loss (or gain) of 500 euro differently.

To illustrate this think of the following "Thinking Fast and Slow"-style problems:

Anna had 1500 euro yesterday. Today she wakes up with 1000 euro.
Ben had 20000 euro yesterday. Today he wakes up with 19500 euro.

It seems to me Anna and Ben would not attribute the same (negative) value to their loss. Prospect Theory seems to claim they would. They incur the same loss (-500 euro) with the same (weighted) probability and value it using the same value function. I haven't found an explanation of Prospect Theory where absolute wealth influences the value function.

In Thinking Fast and Slow, Kahneman does allure to an influence of your reference wealth (page 284):

  All bets are off, of course, if the possible loss is potentially ruinous, or if your lifestyle is threatened.

But this seems a sidenote covering an exception rather than a intrinsic part of the theory.

Does prospect theory ignore the influence of reference wealth size on the value curve? And if it does, why is that valid to do?


texts: Trying to understanding Mark Blyth’s statement about Keynes

texts:
I am reading a book called "Austerity, the history of a dangerous idea" written by Mark Blyth. While talking about Keynes, the author writes:

  "he [Keynes] showed that although any worker can accept a wage cut to
  price himself into employment, if all workers did this, it would in the
  aggregate lower consumption and prices, and thus increase real wage
  (the wage-minus-price effect), leaving the worker who "adjusted"
  poorer and just as unemployed"

I don't understand real wage/price effect. If prices drop with wages, how is the employee becoming poorer? If I make less but it costs less, shouldn't I be able to buy the same amount?

Thank you for your input!


texts: Panel data: When can I used random effects instead of fixed effects? Are control variables necessary?

texts:
I have panel data for individuals in an economy that experienced fluctuations in employment levels. I also have some health information for these individuals, BMI, self-rated health etc.,

My question is this, my dataset is quite small, (1500 people wave one, 1000 wave two, 700 people wave three), I am aware that fixed effects regressions can really cut down the number of individuals I can examine observations in comparison to random effects. Hausman tests aside, are there any theoretical good arguments for using a random effects model in the case where fixed effects decreases the number of individuals analysed to just a handful of people?

Similarly, in a fixed effects regression is it necessary to include control variables? After all, surely this kind of regression is only examining within individual variation, such that control variables are not necessary?

Basically, as fixed-effects models are looking at the determinants of within-subject variability. If there is no variability within a subject, there is nothing to examine. If I am analyzing something that rarely changes across time, or if very few individuals are in a binary group that I would like to examine, there wouldn’t be many cases left for a fixed effects analysis. Thus some of the sample will be dropped from the analysis. Which is what I mean by "reduce the number of individuals (in my sample)". I am aware that other techniques, like random effects or xtreg, fe, won’t cost so many cases and would like a sound theoretical argument to support the use of these techniques.

Any and all insight is greatly appreciated,

John


texts: What does Marx mean by "the division between capital and labor"?

texts:
I am reading an eight page piece called "Labor Alienation" by Karl Marx for my Literature class. Here's a link to it if you would like to read it:

http://www.yavanika.org/classes/reader/marx1.pdf

In it there is a line that says:

  Political economy does not disclose the
  reason for the division between capital and labor, between capital and land.

My background in economics is quite basic, so I apologize for this very basic question. But whatever help I can get will be greatly appreciated!


texts:
Why do interest rates (mortgage, LIBOR, Treasury yields, etc.) move together? What is the fundamental reason behind that?

From my understanding, what drives it is the Federal Funds Rate, which is the rate at which banks borrow from the Federal Reserve. If that rates decrease, then they can borrow at a lower rate, which in turn impact their loan business because they can issue lower rate loans.

Are there other reasons why that is the case? And what are the cases where rates do not move together?


texts: What would be a an accurate metric of the real economy without the financial services sector?

texts:
A youtube video by RT predicts that China's economy will surpass the US in GDP by 2028. The conclusion was a result of projections of GDP growth for both nation's economies. According to anearlier youtube video by CBS News, China already passed the US in purchasing power, another economic metric, according to the IMF, back in 2014.
Due to the size of China's manufacturing sector, which is the sector that actually produces real products and stable jobs, it seems that China has long ago passed the US in the real economy of real goods and services.  Is there a metric of the real economy without the obfuscations of the so-called financial services sector which includes banking, insurance, securities, intangible assets, derivatives, incomes derived from interest and speculation, etc?   In other words, a gross measure of the sum of transactions of tangible goods and services, not including any financing for the tangible goods and services.  Preferably the metric would be in tons of gold, silver, or other real substances of intrinsic value, not in US Dollars or other fiat currency.  Thank you.


texts: What was the reason behind destorying or re-minting counterfeit gold coins of the same karats as the real ones?

texts:
I remember reading about an interesting event which happened in the early 19th century, in the Habsburg Empire.

A criminal organization, mainly composed of workers and corrupt administrators at a gold mine, minted prefect-quality gold coins illegally. Normally, the extracted gold had to be handed in, in exchange for a very low commission, so they handed in only part of the mined gold, minting the rest into coins illegally. However, instead of producing counterfeit coins with a lower than official gold content, they minted coins which had the same gold content as the real ones.

When the operation was busted, the confiscated coins were marked (by hammering a nail through them, if I remember correctly) and transported away to be destroyed, probably to be cast into bullion or to be minted.

This is what I don't understand, why was it necessary if the coins had the required gold content?

The criminal operation was definitely a loss for the government, but from the point of view of macroeconomics it shouldn't have influenced the supply of money. If the criminals wouldn't have minted it, I guess that probably the government would have. So, why were those "perfect" coins needed to be destroyed, if they were to be later re-minted anyway?


texts: I just need to know that how to make a data series of real government expenditures using nominal government expenditure data series.


texts: Does the hoarding of perishable goods such as pulses and cereals make economic sense?

texts:
I was thinking about the idea of hoarding and the kind of news it is making in India. What strikes me is that hoarding of pulses and cereals does not happen the way people thinks because they are a perishable commodity and by hoarding any such product a trader will loose turnover and will have lower return of capital although he can get higher margin. I don't think that except for rice any other produce can be hold for long, as they are perishable. Even rice will turn blackish with time. And if anybody thinks that storing them in cold storage will preserve then then also then it does not make sense as  the traders sunk cost will remain the same whether he hoard or look for more turnover.

So could please anybody help me have a more clear understanding of this hoarding news or is it just a hoax.


texts: Utility function in Ramsey-Cass-Koopmans model

texts:
We are studying Ramsey-Cass-Koopmans model (RCK) in my macro course, I am already stuck in the starting section on assumptions of the model. In particular, I do not quite understand why the ulitity function in RCK is called CRRA, constant-relative-risk aversion function and why it is the case that the coefficient of relative risk aversion is theta θ = -Cu"(C)/u'(C) and is therefore independent of C.
Would appreciate if someone could clarify this.


texts:
I need to find the startegy sets for the two players in this game. I understand that the game has only one subgame, that is, the entire game.
I cannot seem to understand the strategy sets of the players. For player $1$, I believe the startegy set should be $s_1={Ll, Lr, Rl, Rr}$. Since the game is a simultaneous move game, I cannot understand why player $2$'s actions, given a singular information set, are different, i.e., $U, D, P, Q$, although I understand that this is a simultaneous move by players. Please help me understand the game and find SPNE for the same. Thanks!


texts: Why is bargaining more common in poor countries?

texts:
In poor countries, one might bargain over even say a bottle of water. This is unthinkable in most rich countries. (And in countries that develop rapidly, one can actually notice the steady movement from bargaining to fixed prices.)

The "obvious" explanation is that time is less valuable in poorer countries and so people (both buyers and sellers) are willing to spend some time bargaining.

But I wonder if there have been more in-depth attempts to understand this matter (empirical and theoretical).


texts: Why doesn't capitalism run out of money?

texts:
There's this question that doesn't let me sleep at night...

From what I hear, investing surplus money is always considered a good idea because it lets your money "work for you" and earn you more money, even while you do nothing (well, assuming you've made a thoughtful investment and don't just lose your money).

There are various ways to do this, but at the end of the day they are just a variation of the same theme: you buy some object O for X money and then rent it out to people for Y money per month (or week or year or whatever). Y is a fraction of X, but over time it amounts to way, way more than X. X can be anything from cars and boats to real estate and even money itself (aka lending). Companies are a special case of this where the owner rents the company to their employees. The rules are twisted here to be in favor of the employees (instead of a fixed Y they pay whatever surplus they produce; and if they don't produce a surplus then the owner has to pay THEM), but if a company is making a profit, that's essentially what happens anyway.

And the great deal about it is that you, the owner of the object, don't need to lift a single finger. You don't put in ANY work at all, you just rake in the cash. And then with the new cash you can then buy more O's and make money even faster and so on until infinity. Wealth this way expands exponentially, or at least it does until some real life misfortune happens to slow it down for a while.

But here's the problem with this that I cannot get over:

This means that the "owners" are like vacuums for money. There's a fixed amount of money in the system and they just keep getting more and more of it. Eventually, if nothing is done about it, you should end up with a few elite owners that own ALL the money, and vast masses of people who own absolutely nothing, because they've had to spend their last dollars to pay their rent payments.

The government can, of course, print more money, but that leads to inflation and we don't do that much anyway. You can tax the rich people and give a part of their income back to the poor, but that just slows things down.

So... why are capitalist economies thriving and average non-investing people keep getting better lives (and more purchasing power), when theoretically the opposite should happen?


texts: How to calculate the degree of risk aversion of a consumer in a lottery?

texts:
To give an example, say we start with 100 dollars and we enter a lottery. With probability $\pi$, this 100 dollars is reduced by 2 dollars. Otherwise our endowed 100 dollars does not change. Let's say our consumer's utility function is described by $u(c_h)=ln(c_h)$.

It's clear that the consumer is risk-averse, but how would I calculate the degree of risk aversion? How do you find the risk premium here?

Thanks.


texts: Are there any countries in which post-dated cheques are commonly used in trade?

texts:
I am reposting from the Personal Finance & Money Stack Exchange because my question was flagged as being about economics and off-topic.

The post-dated cheque is the most common payment instrument for internal commerce in Turkey. According to the data published by The Banks Association of Turkey, ₺784 billion (equivalent to \$208 billion in December 2017) worth of payments were processed through cheques, most of which are believed to be post-dated. To compare, Turkey's total exports were worth ~$150 billion in the same year.

The reason for me asking this question is: I have been hearing from numerous people that the usage of the post-dated cheque as a financial instrument is unique to Turkey. That is obviously not true; there are other countries that allow post-dating cheques, e.g. Canada.

However, the argument is that the majority of payments are made with post-dated cheques, which could indeed be unique to Turkey. In Turkey, when someone writes you a post-date cheque, you can use that cheque to pay someone else. The process is described by most as minting money on-the-fly. Used as legal money, cheques change hands frequently, and you can find yourself paying for property using a cheque written by someone you don't personally know. Only when the date comes can the cheque be cashed in by its n^th holder, realizing its value promised to its 1st holder. This highly exaggerates the number given above (₺784 billion) which does not reflect how many times a cheque was used in payment.

This essentially forms a network of trust that operates in parallel to the banks. The reason I have been told is that the banks are owned by the holding companies of Turkey, and their operational capabilities outside the financial domain make them competitors to every other company. Thus a businessman in Turkey has an excuse not to disclose his financial/business history to banks; it's like leaking information to your competitors. So instead of taking out a loan, they write post-dated cheques. Again, I am relaying what I have been told.

Given the situation in Turkey, are there any other countries with similar financial habits? Or do the countries listed in Wikipedia (Australia, Canada, India, Serbia etc.) see only limited use?


texts: I know this is a basic question. Can I get a mathematical proof for "Any allocation in the core of an economy is also Pareto optimal." I found this statement on some PPT online.


texts: Wealth Distribution and market incompletness

texts:
From the literature of incomplete market (e.g. Aiyagary 1993,1994), it seems to be the case that:

With complete markets, the capital distribution in the final steady
state depends on the distribution in the initial steady state.
With incomplete markets, the capital distribution in the final steady
is independent from the distribution in the initial steady state.

My first question regards the correctness of that claim.

The second one is the following: if that is correct, what is the economic intuition? Why the initial wealth (or asset, or capital) distribution is irrelevant for the steady state in incomplete market case while it matters in the complete market case?


texts: Appropriate estimator for FDI "gravity" model

texts:
I am trying to model Foreign Direct Investment (FDI) flows and am facing several issues;

There is the well-known condition that under heteroskedasticity log-linearized OLS models are biased and inconsistent. Santos-Silva and Tenreyro (2006) suggest using Poisson pseudo-maximum-likelihood (PPML) to overcome this, and subsequently PPML, negative binomial and Poisson modeling became commonplace in the literature, but...

... FDI flows are often negative (divestment), which cannot be accommodated by count data models or PPML. Negative flows are economically meaningful and therefore cannot just be dropped without loss of consistency. An alternative is to use stocks rather than flows, but this does not seem to fit very well with the theory of gravity equations which seem to me to inherently deal with flow concepts.

Can anyone suggest an appropriate estimator? I have heard the suggestion of multinomial logit (where dep.var. is share of global FDI flows) but this would also seem to falter in the case of a negative flow.


texts:
I find it hard to get an intuitive understanding of the expected pay off of an American option.

I read in this thread expected payoff of an American put option
but what I don't understand is why do we have $$e^{-r(\tau-t)}$$ in the expected pay off? (where $r$: risk-free interest rate,
$\tau$: time to expiry
$t$: time
)

Am I right that this means that there is discounting? Why?


texts: Resources to improve my economic intuition

texts:
I am trying to improve my economic logic skills and ability to think about day-to-day issues in the systematic way economics and decisions science approaches scarcity or optimization.

A simple example to clarify, I know that MC=MR however the intuition as to why MC$<$MR is not optimal is something which educators seem to overlook to explain.

I am looking for any resources online or textbooks, workbooks, non-fiction, etc that will help me sharpen these skills.

Let me know if I can further improve my question, apologies in advance as this is my first post.


texts: Friedman's version of money multiplier formula

texts:
In his Quantity Theory of Money article M. Friedman uses the following formula for the money multiplier: $$ M = H \times \frac{\frac{D}{R}(1 + \frac{D}{C})}{\frac{D}{R}+\frac{D}{C}} $$

where $M = $ money supply under fractional reserve, $H$ = high-powered money, $D$ = deposits, $R$ = bank reserves, $C$ = currency in the hands of the public.

Why did he write the formula in this unusual form? Are there any insights to be seen from it?

For me the usual form is the one given for example in Mankiw:

$$ M = H \times \frac{C+D}{C + R} = H \times \frac{\frac{C}{D} + 1}{\frac{C}{D} + \frac{R}{D}}$$


texts: Career-question: Fields that combine Development Econ with Finance?

texts:
I am studying economics, and am mainly fascinated by development economics and finance. What are some common career paths that involve the combination of these topics, and what subtopics can one study to strengthen oneself further in these fields?

Initially, I believe investment funds for developing countries is one possible field to look at, is this correct? What are the alternatives?

(I cannot find a "career"-tag so I apologize if this question if off-topic)


texts: How are low/middle/high classes defined mathematicaly?

texts: I am only looking for mathematical references. I think this belongs to econometrics but am not sure nor where to look at it specifically. I suspect the definition is given with some kind of weighted average where income and number of people with similar income are computed.


texts: Letting clients/guest reserve their space vs keeping space clear so that it is available for people who really need it at the moment

texts:
Everybody knows that moment when you are in search for a beach lounger but everything is covered by towels, yet the people who placed them there are untraceable, often back at the hotel or in the town and will often not be needing the space for hours. The same problem arises in public libraries (if you attend the University of Innsbruck, you know first hand). People come there at opening time, reserve their space and then leave for an indefinite amount of time, just so that they are guaranteed to have a place to work when they need it at some later point in time.

I have seen multiple examples of a strategy that follows a simple principle: clear space that has not been occupied by a person (but by some stuff to mark it as occupied) for a certain amount of time. It seems to me that this strategy optimizes a number of desirable quantities:

total work/activity: more people are performing their work/activity at the space that is provided for it
efficient use of space: i.e. less space for the same result
average availability of space for an individual at any given point in time

As another plus, people do not have to worry about reserving space early in the day.
Of course there is a certain amount of added administrative cost: somebody probably has to be in charge of clearing space that should not have been reserved but has been.

My question is: is there any research that investigates said quantities (or similar)? It seems to me that this paradigm optimizes efficiency, customer satisfaction and also safety (imagine hundreds of clients "fighting" for spaces at opening time).


texts: There are six types of unemployment rates in the US (U1-U6). U6 provides the broadest measure of unemployment, taking into account not only the unemployed labour market participants who are actively seeking for jobs, but also the marginally affected, the discouraged, as well as the part-time workers who would like to have a full-time job (i.e. "underemployed" workers). This broad measure is deemed by numerous economists to be the "true" unemployment rate. However, what is usually popularised in the news media is in fact, the U3 unemployment rate, which only takes into account those unemployed that are actively seeking for jobs. What is the reason for the U3 rate being the more popularised and widely emphasised measure of unemployment in the United States and also for other developed economies?


texts: Why do we include actions even on nodes which will not be reached if the strategy is followed, while defining the pure strategies of an extensive form game?


texts: How do debt-free governments control the money supply?

texts: From what I read in my introductory macroeconomics textbook, central banks can control the money supply by selling government bonds in the market (decreases money supply), or by buying government bonds from the market (increases money supply). Countries that have no debt have no need to issue bonds. In the case of these debt-free countries, how do their central banks control the money supply?


texts: Linear Regression Assumptions of Homoskedasticity

texts:
When I studied linear regression analysis, one of the assumptions taught was that of homoskedatiscity. I understood that homoskedasticity was required for significance testing on the coefficients. Then in my econometrics class, my professor said that we actually don't need homogeneity assumption since it was too strong. Instead, in order to conduct hypothesis testing on the coefficients, we could use "t-robust test" or Wald test.

So then why is homoskedasticity still widely assumed and taught in linear regression class? How do I reconcile these?


texts: In which market structures does the producer employ price discrimination?

texts:
I was recently reading up on the Price Discrimination, first second and third degree. Although the author has laid out the concept neatly, there are no connections established between this concept and the market structures. Therefore, I came up with the above-mentioned question.

In my opinion, the key criteria to exercise price discrimination is that the firms must have some price setting abilities. So Perfect Competition is definitely out. In Monopolistic Competition prices tend to be sticky so I think that this might be one market form where Price Discrimination is not heavily practiced. In a Monopoly, though the situation is quite different as the sole producer can charge as much as he likes and could therefore engage in Price Discrimination. I am not sure as to what would happen in Oligopolisitc Market Forms.


texts: Question on significance of different ways of measuring Price Elasticity of Demand

texts:
I'm a pre college student, self studying economics, I have a question regarding the different forms of measurement of Price Elasticity of Demand.

The basic equation for PED with respect to a point $(x_1,y_1)$ on a demand curve (qty x axis, price y axis), given another point $(x_2,y_2)$ is:
$\frac{(x_1-x_2)/x_1}{(y_1-y_2)/y_1}$
This gives us the responsiveness of qty demanded relative to price at an initial point $(x_1,y_1)$.

However, my text mentions that depending on the choice of initial point, either $(x_1,y_1)$ or $(x_2,y_2)$, the PED is different. Hence, in order to overcome such a problem, we utilize arc elasticity of demand, which uses the midpoint as a initial value.

My question is this:
Isn't PED supposed to vary along a demand curve? If we rearrange it as (Change in qty/Change in price)(Price/Quantity), we can see that it does depend on which point on the curve it is. Hence, why is it regarded as a "problem" that depending on which initial value we use, we get different PED?

And by extension, I read that the definition of arc elasticity is the elasticity of one variable to another between two given points. I don't fully understand what is the significance of using the midpoint as an initial value, other than it netting the same PED for two distinct points. What does it actually mean when we take the difference of two points and divide it by the midpoint?

And on a final note, is point price elasticity of demand recommended when we have the functional relation of price to quantity?

I've been looking on the internet, and I haven't really been able to find/just don't understand anything about this. Sorry if this is elementary, but I haven't got anyone I know to ask.


texts: What is the danger of (China's) investment-led growth as opposed to consumption-led growth?

texts:
I keep reading that China must switch to consumption-led growth or productivity-led growth, that investment-led growth is 'dangerous.'

I understand that it is probably not sustainable in the sense that returns on capital will start to fall after awhile. But what else is the danger?


texts: Some basic questions on infromation asymmetry

texts:
How does asymmetric information and bid-ask spread are connected? For instance, economic theory tells us that, the more the problem of information asymmetry, the higher the spread is. What is the intuition behind it? Can this change?
Furthermore, what is the difference between asymmetric information, incomplete infortation and imperfect information?


texts: Why doesn't the trade balance equation take into account the value of products sold by the U.S.?

texts:
$$NX ≡ (S-I) + (T-G)$$
  Read this as “the trade balance (net exports) is identical to the sum of net savings (savings minus investment) and the government’s budget surplus or deficit (taxes minus spending).” This is not a theory of what causes what; it’s an identity, different ways of expressing the same “what”.

Let's say the U.S. had a $NX$ or trade deficit of $500$ billion dollars and overnight the U.S. forced countries around the world to buy $1$ trillion dollars of U.S. military equipment giving the U.S. a trade surplus of $500$ billion. Does this mean that the equation: $NX ≡ (S-I) + (T-G)$ doesn't take into account non-macroeconomics factors and therefore is wrong?


texts: Sen's property $\alpha$ holds when limited attention in choice?

texts:
Consider the limited attention choice framework by Matejka and McKay (2015).

This framework can give rise to consideration sets, as roughly summarised below.

Consideration sets in the limited attention choice framework:
  Since attention is a scarce resource, the agents may be induced to contemplate only a subset of the available alternatives, ignoring all the others. More precisely, this framework assumes that the decision maker (hereafter, DM) knows the feasible set but is not fully aware of the value of each alternative in the feasible set. The DM is endowed with a prior on the value of each alternative in the feasible set and can "buy" an  information structure to update such a prior.  An information structure consists of a  signal that, once realised, allows the DM to update her prior and then choose the alternative from the feasible set maximising the expected utility given the refined information. On one hand,  the DM prefers a  signal that is as informative as possible on the value of each alternative  in order to minimise ex-post regret. On the other hand, limited attention constraints imply that a more informative  signal is more costly because it requires more cognitive effort to be processed. Such a trade-off can lead to equilibria featuring information structures such that some alternatives in the feasible set are never chosen by the DM for any realisation of the signal. Hence, these alternatives are not part of the DM's consideration set. Complementarily, the DM consideration set's consists of the alternatives which are chosen by the DM with positive probability  for at least some realisations of the signal.

Question: Consider the Sen's property $\alpha$ stating that
if an alternative $x$ is chosen from a set $T$, and $x$ is also an element of a subset $S$ of $T$, then $x$ must be chosen from $S$. Does this property hold in the the limited attention choice framework by Matejka and McKay (2015)? The authors have a discussion about IIA (independence of irrelevant alternatives) but I couldn't understand whether the Sen's property $\alpha$ holds or not.


texts:
What are the books usually called for studying the computation of GDP?

It seems that the economics growth by Barro doesn't discuss about that.


texts:
I am having some trouble understanding exactly what is meant by the "true" Regression coefficients. Let's say it is stated that "the true regression coefficients are given as $y=a+bx+e$ where the error term fulfills all the OLS assumptions. Does this mean

a) Given knowledge of the value x takes one would describe their belief about the value y takes with the probability distribution on the right hand side.

b)a one unit change of x in a certain instance would cause the expected value of y to change by b.


texts:
Recently Microsoft floated a \$17 billion bond to finance the purchase of LinkedIn (remind me to delete my account).

Some might wonder why a company with nearly \$100 billion in cash would need to borrow \$17 billion. The reason is that nearly all of that $100 billion they have is in bank accounts in other countries. If they were to repatriate that money to buy LinkedIn, then they would potentially have to pay corporate taxes on it. So, it is actually cheaper for them to borrow the money domestically than repatriate foreign held funds.

This brings us to the question: what can they do with the foreign cash?

One obvious answer is to buy foreign companies. Is that the only use?


texts: Are these products substitutes or independent?

texts:
A consumer's preferences are represented by the following utility function:

$$u(x,y,m) = x+y+m$$

where $m$ is money. Are the goods $x,y$ substitute goods or independent goods?

Microeconomic textbooks say that they are perfect substitutes. Why? Because the consumer will always want to spend his entire budget on the cheapest product. So, if $p_x<p_y<1$, the consumer will demand only x, while if $p_x$ increases above $p_y$, the consumer will demand only y. So, the demand of y increases with the price of x.

But consider the following situation: x and y are two kinds of rare items that are sold in an auction. The consumer has enough money to buy all available units. Then, if $p_x<1$ the consumer will want to buy all available units of x regardless of $p_y$, and if $p_y<1$ the consumer will want to buy all available units of y regardless of $p_x$. By definition, this means that x and y are independent goods.

Does this mean that the definition of substitutes vs. independent goods depends not only on the utility function but also on the exact situation?

Are there any references that discuss this issue?


texts: Economic history/geography of the UK (1960-today)

texts:
I am not an economist and I am looking for reference knowledge about how the economy of the UK (mainly focussing on England/Scotland/Wales) developed over the past 5 decades. The kind of information I need concerns:

GDP by sector: how did the different sectors change over time (e.g. decline of manufacturing and rise of services)?
Statistical regions: how did they evolve? What are their commonalities/differences?
How did different cities evolve (e.g. London vs Manchester/Birmingham)?
Economic trends and demography: What is the relationship between economic trends and population?

What (relatively) recent textbooks/reports/articles would you recommend to find this kind of topics?

I don't necessarily need the associated data, but that would be a nice plus.


texts: Empirical means of discerning "economy" and "bubble"

texts:
In the news lately and in previous administrations, one of the most popular sound bytes I've heard was: "so and so is not growing the economy, he's growing the bubble." As with much sensationalism in the news, this is a rather normative statement. What I want to investigate is:

Question: what is a positive statement that can be said for the same argument?

Seeing as the federal reserve themselves have openly said they have no formal definition of a "bubble" and we can take it all the way back to the tulip mania days, but I think it's still interesting to see what is the most persuasive quantifiable metric that would suggest if the bubble is growing or if the economy itself is growing.

My best attempt One metric I noticed was in America home ownership is down and yet the real estate prices are increasing, suggesting that the valuation of homes is from the speculation of a wealthy few. Now, I concede this is only representative of one part of the economy, to see the bigger picture we would have to include more industries. Perhaps the same technique, but using a composite basket of such metrics?


texts: Determining Another Possibility For a Microeconomics Question

texts:
If new, more advanced equipment reduces the amount of labor needed to produce an increased level of output, then

The AVC curve will shift upward
The MC curve will shift upward
The ATC curve will shift downward
The AFC curve will shift upward

The textbook states the correct answer is 3, however my teacher tells me that there is another possibility.

My thinking is that it could be the 1.The Average Variable Cost will shift upwards. My reasoning is that because the new equipment adds to the cost, including ordering the equipment, installing it, maintaining it, and training people to operate it. All of that would contribute to the cost.

Am I grasping the concept of AVC correctly. And is 1. a good alternative?


texts: Why growth of national income in current prices during inflation not measured in poor sections and poverty alleviation programs?

texts: Here 1) dwindles means reduce, smaller. Here is my doubt: If inflation fluctuates how can we use the word 'dwindles', what it means here? 2) Why the growth rate during inflation not measured in poor sections and poverty alleviation programs?


texts: Econometric model of government interest rates and abnormal returns

texts:
My question is one which model I should use to examine the relationship between interest rate movements of government bonds (DV), and an IV of abnormal returns I have generated following specific events.

I need to measure what changes take place to a mean interest rate of several countries (DV), when the market has already reacted (IV) to the event I am interested in. So my DV is the change in the mean interest rate of several countries, while the IV is the abnormal return for each country's interest rate following the event.

The theory is that markets should react to changes peer group countries' interest rates, so as the IV increases (it can also be negative), the change in the DV should increase.  I was thinking to use a simple OLS regression,with a range of fixed effects, but would that be acceptable?


texts: Is Canada a country of high taxation in international comparison?

texts:
Looking through Canada's culture section on wikipedia, it's described as having:

  Government policies such as publicly funded health care, higher taxation to redistribute wealth, the outlawing of capital punishment, strong efforts to eliminate poverty...

However, looking into taxation in Canada their income tax of 31.6% (if single with no children) and their corporation tax seems fairly lower then, for example, the higher rate of tax in the UK (45%).

Why is Canada regarded to have policy in high taxation to redistribute wealth when their taxation actually appears to be fairly low?


texts:
Economists generally frown on deception. For example, the journal Experimental Economics does not publish papers which use deception. However, I know that famous economics studies have been published where people send fake resumes to employers (to detect racial discrimination). For example, Bertrand and Mullainathan (2004).

Does this mean that sending fake resumes is not deception?


texts:
Dynamic, Sequential, Stochastic, Extensive form and Evolutionary games.

I know what all of them mean very roughly.

I want to clarify them.

As I understand Extensive form is a description of a game, not the type of a game. But Some use Extensive form game as a type of game.
So, is Extensive form game sequential game?

Can anybody clarify the definitions of all these terms and relationships/differences?


texts: Does concavity of the utility function has any bite?

texts:
A utility function in general has only ordinal meaning, any monotone transformation preserves the order isomorphism of the underlying preference ordering. However, there are several econometrics papers, that estimate demand with concavity shape restrictions on the utility.
Is this justified?
My first thought is that yes, that the key idea is that there exists a concave utility representation, and this generates the dataset, however it worries me the identification issue since there is infinitely many of these utilities not all of them concave.
In short, does it make sense to require concavity restrictions on the utility function in econometric work?


texts: Who was the first to model sequential market equilibrium?

texts:
As a PhD student the standard macroecononomics education I have received (and continue to receive) revolves around the most realistic model of market structure ive seen to date, that being sequential markets. I've seen the equivalence to the equilibrium outcomes of the arrow debreu market structure (which is computationally simpler on pen and paper).

What I havent seen is a textbook formally speaking about sequential markets and solving such problems with a legrangian, rather ive seen many of printouts on the topic with no real "orgin text" for the concept.

When were sequential markets first talked about?


texts:
The intertemporal capital asset pricing model (ICAPM) is different from the CAPM in that in the ICAPM, utility is conditioned on some set of state variables. The ICAPM results in a multifactor pricing model of the market if investor care about hedging against changing investment opportunities and exposure to these factors. Are there any canonical examples of these factors?

I know that the Fama-French multifactor models (e.g., the three factor model) are often justified on grounds of the ICAPM (or APT -- arbitrage pricing theory). What are the underlying risk factors that justify this model? Are there any other examples of underlying risk factors that show up a lot?


texts: Explaining why Hicksian demand is more inelastic to intermediate micro student

texts:
How would you best explain to a student in intermediate micro class that the Hicksian demand for a normal good is more inelastic than the Walrasian demand without heavy differential calculus?

When I mean inelastic, I mean specifically being less responsive to price changes, a picture similar to MWG Figure 3.I.3.


texts: Econometrics: why the i.i.d assumption and weak exogeneity assumption imply strict exogeneity?

texts:
The proposition is from lecture notes of advanced econometrics of Yongmiao Hong:

A1: $\{Y_t,X_t'\}_{t=1}^n$ is an i.i.d. random sample.

A2: $E(\varepsilon_t|X_t)=0$ almost surely with $E(\varepsilon_t^2)=\sigma^2<\infty$.

Then A1 and A2 imply the strict exogeneity holds:
\begin{equation}
E(\varepsilon_t|X)=E(\varepsilon_t|X_1,...,X_t,...,X_n)
=E(\varepsilon_t|X_t)=0
\end{equation}
My question is about the second equality: why we have $E(\varepsilon_t|X_1,...,X_t,...,X_n)
=E(\varepsilon_t|X_t)$ under assumptions given above?


texts: MSNE and the probability of encountering each payoff

texts:
I'm currently setting up a model using data from the game "Hearthstone". Those familiar with the game know that it can (for the most part) be described as a zero-sum game, where players choose a deck before being randomly matched against another player. These decks have over-all winrates against all players, as well as winrates for each specific matchup (Deck A vs Deck B).

Let's assume there are only 5 decks that can be played (there are a lot more). We could then form a 5x5 expected payoff matrix for each matchup using the respective winrates of all decks.

My question is this: how would the probability of encountering a certain deck factor in? We could technically calculate an optimal strategy from the payoff matrix, but it doesn't seem like that takes into account the likelihood of encountering a certain deck more than another.

At first I thought it could be a type of signaling game, where the matchmaking process was a "type" drawn randomly, but that isn't the case here, since the players are making their decisions before this occurs.

Edit

I should have specified. I mention MSNE since I'm trying to see if you can better your chances of winning statistically by playing a number decks in a number of sequential games, rather than just choosing one deck and sticking with it.


texts: Can you recursively forecast one variable using two variables?

texts:
My question is probably very elementary but I haven't been able to find an explanation of recursive forecasting that I fully understand.

I've read a journal article that seemed to recursively forecast unemployment with an AR(2) process augmented by a variable for depth of recession lagged by one period. It seems to me like that wouldn't be possible if the model doesn't produce forecasts for the other variable to include in the forecast for the subsequent period as well.

So does recursive forecasting use actual values for each subsequent forecast or forecasted ones? And does it just do that for the auto-regressed variable or both? Is it a standard practice to use forecasted values for one variable and actual ones for another?

I have quarterly data on unemployment (U) and change in total lending (DL) in an economy. I want to estimate an AR(2) for U plus DL at t-1. How can I make out of sample forecasts with this model? Is my only option to use predicted values for DL that are forecasted by a separate model?


texts: How to detect if Ergodicity, Stationarity and Martingale. dif. sequence are satisfied?

texts:
I'm not sure, but I think I've read somewhere that because the Classical Linear Regression model assumes to have a random sample, when researchers think they might not be in presence of a sample with that property, they try to use some randomization technique to make sure the usual theory may be applied.

In Hayashi's Econometrics, chapter 2, he develops the OLS and studies its large-sample properties in a generalization of iid sample. He assumes that the sample is ergodic, and stationary, and that the regressors multiplied by the error terms (the same that define the orthogonality conditions) also follow a martingale difference sequence.

My question is, given a sample, is there a way to know if it satisfies ergodicity, stationarity, and martingale diff. seq.? Also, even if the sample does not satisfy it, is there a way to make sure that we are able to obtain such a sample, when randomization techniques are not possible to apply?

Any help would be appreciated.

P.S.:
This question is also posted in CrossValidated, but with a different intention. When posting it here, I'm looking more for a perspective of applied econometricians, not so much for formal mathematical explanation of the possible existing methods. But of course, if you're willing to formalize and going into depth I would also be very thankful.


texts: What explains why Puerto Rico has much lower GNP than GDP?

texts:
I can understand why some countries like Luxembourg, Singapore, and Ireland have much lower GNP than GDP.
But why is the same true for Puerto Rico? I would've thought that since lots of Puerto Ricans work outside Puerto Rico, its GNP should be higher than its GDP. Yet the reverse is true.
(In 2019, Puerto Rico's real GDP per capita was \$36,045, while real GNP per capita was \$24,300. So GNP was about 67% of GDP.)


texts: Max Utility Function and Finding associated demand curve

texts:
I have a max utility function, therefore;
U(x,y)= max(2x,y)
and I am trying to find the demand function x = x(x , y , ), note this function cannot be differentiated. I am familiar that the utility function states that it is best to have x=0 and all of the good y, or vice versa. So I've been trying to solve with the budget line making one x=0 and then again y=0 but I am unsure what to do from this point?

Working so far:
p1x+p2y=M
when y=0
x=m/p1
U= 2m/p1

&
when x=0
y=m/p2
U= m/p2

So now I have two equations in terms of U


texts:
I have a difference equation
  $$
p_t^{1-\alpha}=\alpha\sigma \left(y-p_t-\frac{(\sigma p_{t-1}^\alpha+b)p_t^{1-\alpha}}{\alpha\sigma} \right)
$$
  where $\alpha \in [0,1]$ and everything else is $>0$.

I need to prove that this equation has a unique steady state.

This is what I have done so far;

Simplified the expression to write it in the closed form as follows;
$$
p_{t-1}=\left[\frac{\alpha y}{p_{t}^{1-\alpha}}-\alpha p_{t}^{\alpha}-\frac{a+1}{\sigma}\right]^{1/\alpha}
$$
Substituted $p_{t-1}=p_t=\overline{p}$ in the closed form, this gave.
$$
\overline{p}^{\alpha}=\alpha y\overline{p}^{\alpha-1}-
\alpha\overline{p}^{\alpha}-\frac{a+1}{\sigma}
$$
I'm stuck here. How can I prove that $\overline{p}$ has a unique solution?


texts: A question of deriving an industry supply curve from cobb-douglass production function

texts:
I have a question about a proper derivation of industry supply curve from cobb-Douglas.

The production function is given as:

\begin{equation}
q_i = 2x_1^{1/2}x_2^{1/2}
\end{equation}

the price of $x_1$ input is $w_1=1$ and $x_2$ is $w_2=4$

These are the steps I used in trying to derive the supply curve:

I used the well-known fact that technical rate of substitution must be equal to factor prices so:

\begin{equation}
\frac{\text{MP}_{x_1}}{\text{MP}_{x_2}} = \frac{w_1}{w_2}
\end{equation}

So after substituting prices and the marginal products which we get from taking the partial derivatives of $q_i$ we get:

\begin{equation}
\frac{x_1}{x_2} = \frac{1}{4} \text{ or } x_1 = 4x_2
\end{equation}

Now I substituted this back into the cobb-douglas to get:

\begin{equation}
q_i = 4x_2 \text{ or } \frac{q_i}{4} = x_2
\end{equation}

Now I just used general profit equation:

\begin{equation}
\pi_i= pq_i - w_1x_1 -w_2 x_2
\end{equation}

I substituted the solution for both $x_1 = 4x_2$ and also that $x_2 = q_i/4$ and I got:

\begin{equation}
\pi_i= pq_i - 2q_i
\end{equation}

So my thinking was that by solving for optimal $q_i*$ and multiplying it by $n$ - the number of firms I could get the supply curve. But since the profit function is linear the $q_i$ drops from the derivation.

Please, could someone give me advice on how to proceed?

Edit: Also I forgot to mention that it is assumed that industry is perfectly competitive.


texts: Is there an "ideal" ratio of tax revenue to GDP? Or, at least, can I assume a higher ratio is better?

texts:
At the link below, you can see countries have a huge difference in ratios of tax revenue to GDP. Is it fair to assume that a higher ratio is better? Does raising a substantial portion of your GDP in taxes mean that your country is more or less financially stable?

I see that Algeria is #1 worldwide at 63%, while UAE is the lowest at 1.4%. I assume this is because the UAE has a huge GDP from oil (and thus taxes don't play a big role in its GDP) and because Algeria has a tiny GDP (and thus, a fairly-efficient tax system results in a fairly high ratio).

https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio


texts: What idea was proposed to remove global poverty?

texts: I am not an economics student, but I would like to know about this simply but in details. I would like to understand this Noble Prize winning thoery by Abhijit Banerjee , Esther Duflo and Michael Kremer


texts: Which way is the pendulum swinging with regards to "Access to Capital"

texts:
The premise is said best by the economist George Magnus in 2015:

"Advances in technological productivity gains are benefiting a limited number of people. The principal rewards of modern technology are accruing to the owners of capital, not the owners of labor. Think about the three biggest firms in silicon valley: they have 137,000 people. These three companies are worth 1.2 trillion dollars. Now cast your mind back just 25 years to 1990. The three biggest companies in Detroit had 10 times as many workers, but their combined market value was a mere 36 billion dollars." (in 2015 index dollars)

Magnus is making the case that the "pendulum" is swinging away from labor/masses in the main, and into the hands of the highly technically trained few. However, in America, nearly everyone has smartphones and laptops these days, but is this kind of access to capital enough to modestly challenge Magnus' assertion?

Main Question: I concede a good portion of the middle class' top performers are indeed in the tech sector, but is it possible that there is still a lack in access to capital in America's middle class (despite our affinity for gadgets)?

On a related note, in addition to technological capital, if we examine other measures of capital, like real estate, we find a similar trend. America's real estate market has very high prices, despite the fairly well-documented data that American national's demand for housing is weak. This is reflected by the Home Owner's index. It has been postulated that the housing demand stems stems from a wealthy few speculators who buy the land.

Tangent Question: Is their any connection to these two facets of capital and how capital is owned in the US?


texts: Does trade between countries tend towards a state of only containing monopolies as a result of comparative advantage?

texts:
I've recently been reading Mankiw's Microeconomics 8th edition. In there he raises the idea of comparative advantage and points out how if we have two participants in an economy who both produce apples and oranges, with participant being more efficient at producing apples and oranges that trade still makes sense, because whilst one participant holds an absolute advantage, a comparative advantage can arise from the participants specialising in the production of what they are best at.
This is fine and makes perfect sense (although Mankiw explains it better than I have here). The trouble I have been having is trying to understand this when thinking about a more complex economy than a toy one composed of only two participants. In the simplest terms, if we were to duplicate the two participant economy to effectively create two two participant economies - like two countries both of which has apple producers and orange producers. Does the theory of comparative advantage hold in this case where the producers in an economy are not producing products unique to a single economy and are both still producing the same products? As I'm trying to think about it, it seems to me that what would happen in this case would be one of the producers of apples would 'win' and on of the producers of oranges would win because they hold the greatest comparative advantage, therefore the two remaining producers would cease to produce. An implication of this I think is that in the long-run all capitalist economies would approach a state of only containing monopolies? Is this reasonable?
I've had a look on here and there seems to be some similar and related questions, but nothing that directly asks the same question:

International Trade: Two country trade problem

(Modified comparative advantage model)Can trade with a country that only has one industry be mutually beneficial?

Who exploits comparative advantage in international trade?


texts: Nash Equilibrium of modified Keynes' beauty contest

texts:
Recently I conducted a small game among students of our institute. The game was based on Keynes' beauty contest game. The participants had to guess a number between 0 to 100 and the participant whose guess was closest to 2/3rd of the average of all guesses would win the game.

The twist was this: We also awarded money to the winner in each round. The money was a multiple say, 5x of the final number (2/3rd of the average).

What will be the Nash Equilibrium of this modified game. The solution to the original problem is of course everybody choosing 0. Will the equilibrium shift in the above described game. Consider n to be greater than 30.
Any help would be appreciated.


texts: Should housing be considered a form of capital for the purpose of capital gains taxation?

texts:
Economists across the political spectrum almost unanimously oppose the home mortgage interest tax deduction. While I'm sure there are a few whom I've missed, I could only find a single professional economist who supports it. Greg Landsburg believes that capital income should be untaxed, based on the Chamley-Judd model and its subsequent refinements. He argues that the home mortgage interest tax deduction effectively cancels the distortionary tax on home mortgage interest capital income, and so represents a step in the right direction, although he would prefer a complete elimination of all capital income taxation.

But does housing really counts as "capital" in the Chamley-Judd sense? A textbook example of capital gains is a lender lending money to a borrower who uses it to buy sewing machines, tractors, etc. and start up a new company, which then turns a profit and allows the borrower to repay the loan with interest. In this example, everybody wins (the borrow, the lender, and the new company's customers), and the Chamley-Judd result that these kind of loans should not be taxed is very reasonable and intuitive.

But as Greg Mankiw's Intro to Economics textbook points out, housing is somewhat of an edge case between capital and consumption, and the fact that "capital" is traditionally defined to include housing is a bit of a historical accident. Morever, there is debate among economists about whether or not housing should be properly classified as capital. (Mankiw also wrote a New York Times column on this issue.)

I'm not familiar with the precise assumptions of the Chamley-Judd model, but does the main result that capital income should be untaxed include income from housing appreciation? People typically buy first homes (the only kind to which the mortgage interest deduction applies) for their own personal use, not primarily as investment opportunities. It's not obvious to me why housing purchases would lead to the creation of new economic wealth as more traditional capital investments do. In contrast to Landsburg, Uwe Reinhardt claims that

  If pressed, the proponents of the capital-gains preference might concede that a tax preference for gains on transactions in residential real estate is hard to defend.

Under the assumptions of the Chamley-Judd model (or looser, less formal economic reasoning), is housing naturally classified as capital whose appreciation should not be taxed?


texts: Why is the Fed considering increasing interest rates?

texts:
America's Fed Funds rate is below 1% and its growth rate is 3.9%. India's lending rate is approximately 9.5% and its growth rate is 5.1%.

India just dropped its lending rate while the US is considering increasing its own rates. Isn't this counterintuitive? Wouldn't the increase in the 'cost of capital' slow down the US economy?


texts: Are there theories that invalidate the "tragedy of the commons"?

texts:
Wikipedia states:

  The tragedy of the commons is an economics theory by Garrett Hardin, according to which individuals, acting independently and rationally according to each one's self-interest, behave contrary to the whole group's long-term best interests by depleting some common resource.

Intuitively, this seems correct that self-interest would lead to over use under the assumption that others would do the same.

Have there been any strong counter theories that argue that people would act in a "sub-optimal" way for the betterment of the community?


texts: How are preferences related to relative prices?

texts:
For instance, across regions of a country or between countries.

Is that different preferences for food lead to distinct relative prices in different regions or countries? Or is it the other way around: distinct relative prices lead to differences in preferences?


texts: How do the factors of production map to the GDP identity?

texts:
How do the 4 factors of production (nature / capital / labour/ entrepr.) map to the GDP components in:
$$Y=C+I+G+(X-M)$$

To me it seems that all factors map to all GDP components, simply because it's fully a different perspective to breakdown the GDP. Is that correct / why?

thanks!


texts:
Has there been a post-mortem on the Saturn pricing model? For those who do not remember, in the 1990s GM sponsored a new car model, the Saturn, which featured "no haggle" pricing. The car would be sold at one fixed price depending on options.

Anecdotal evidence suggests that the pricing strategy was popular with buyers, but did it work for the company from an economics point of view?


texts: When to invest into additional products?

texts:
This is a very applied question so I hope it's the correct adress here for it:

I'm running a small entertaining business for virtual reality experiences. Investment was about 120 k. I now build it all up and just opened a week ago. Money left is 25 k. There are two major things I would like to buy, one costs 6 k, the other 18 k (both software licences).
At the moment, without any income, I can survive about one year. That's why I probably will skip the expensive one of both licences. On the other hand it is a high award winning experience and also advertised by very famous people in our nation. That's why I'm not skipping it at all in my head.
The other one I guess it could fit to my finances. But anyhow, since VR is probably requested way more in winter time than in summer time I'm not sure how much profit I'll gain and if it is smart to invest into one of both.

Is there thumb of rule or even any academic method how to figure out if an investment promises to be a good decision? I'm aware that it is probably rather difficult but I'm a technician and I'm used to research anything at different methods. Hence, I believe there must be some tools to use for business purposes?


texts: Why don't firms and individuals do much more risk management? Couldn't they all hedge all kinds of risks financially?

texts:
There are many risks in the economy that agents could hedge. For example, house prices can go up or down, healthcare costs canchange, gas prices constantly change in fact, food prices,etc. They all change in somewhat unpredictable ways.

Therefore, you would think that most firms are exposed to some of these price shifts, but it doesn't seem like most of these firms are buying insurance or hedging against the risks. People also don't hedge. For example, a person that drives an hour to work should hedge gas price risk. Otherwise his net income after gas expenses is quite unpredictable!

So, my question is, why do you think most agents don't hedge most of their risks? Are the transaction costs too high? Are people not financially sophisticated enough? Are financial markets not developed enough? Maybe there's a business model where the local bank branch should sell this kind of insurance/hedging and after some education everybody would be using it!

We could all hedge all kinds of risks, which would actually make everybody else we trade with have more predictable incomes! In fact it makes sense to thing that the government aught to require any agents exposed to big risks to hedge themselves.! Anything wrong with my thinking?  :)


texts: The Federal Reserve is only issuing cash money?

texts:
When the Federal Reserve is issuing money, they are only printing cash money (coins and banknotes)?

If not, then what other types of money they are issuing?


texts:
My question is about 6.C.4. of Mas-Colell et.al.'s Microeconomic Theory book.

We have N risky assets with returns $z_n, n = (1,...,N)$ per dollar invested which are distributed over $F(z_1,...,z_n).$ All returns are non-negative with probability one. For an individual with a continuous, increasing, and concave Bernoulli utility function $u(\cdot)$ over $\mathbb{R_+}$, we define the utility function $U(\cdot)$ over $\mathbb{R}_+^N$, the set of nonnegative portfolios as:

$$U(\alpha_1,...,\alpha_N) = \int u(\alpha_1 z_1 + \cdots + \alpha_N z_N)dF(z_1,...,z_N)$$

We are asked to show for part c that $U(\cdot)$ is continuous.

The book's solution is a little difficult (particularly since I haven't really worked with measure theory before), but my teacher has said there is a more straightforward way of doing the question. I have questions about both of these points.

First, looking at the book's argument.

We create a sequence $(\alpha^m)_{m \in N} \to \alpha \in \mathbb{R}_+^N$. Then if $U$ is continuous, we should get $$(\alpha^m)_{m \in \mathbb{N}} \to \alpha \implies U(\alpha^m)_{m \in \mathbb{N}} \to U(\alpha)$$

$\exists \ \delta > 0$ s.t. $\alpha^m \leq (\delta,...,\delta) \ \forall \ m$

Since $U(\delta,...,\delta)$ is finite, $z \to u(\sum_n \delta z_n)$ is integrable.

Since $u(\cdot)$ monotone and returns are nonnegative with prob. zero:

$$u(\sum_n \alpha_n^m z_n) \leq u(\sum_n \delta z_n) \ \forall \ m, (z_1,...,z_N)$$

Since $u(\cdot)$ continuous,

$$u(\sum_n \alpha_n^m z_n) \to u(\sum_n \alpha_n z_n)$$ for almost all $(z_1,...,z_N)$

Here the book decides to apply Lebesgue's dominated convergence theorem. We are in some measure space $(S, \Sigma, \mu)$ which states that  for some sequence of functions ${f_n}$, if it pointwise converges to some function $f$ and

$$\mid f_n(x) \mid \leq g(x) \ \forall n \quad \text{in index}, \ \forall x \in S$$

(recall we constructed $g(x)$ earlier)

Then $F$ is integrable and

$$\lim_{n \to \infty} \int_S \mid f_n - f \ \mid d \mu = 0$$

$$\implies \int_S \mid f_n - f \ \mid d \mu \to f d \mu$$

So

$$\int u(\sum_n \alpha_n^m x_n) dF(x_1,...,x_N) \to \int u(\sum_n \alpha_n x_n) dF(x_1,...,x_N)$$

$$\implies U(\alpha^m)_{m \in \mathbb{N}} \to U(\alpha)$$

  I added in the direct definition of Lebesgue's dominated convergence for my own clarity, and I think I understand the proof, but my question for this part is what is the measure space? I know $S = \mathbb{R}_+^N$, and $\mu = F$, but what is $\Sigma$ supposed to be? I think it's supposed to be a $\sigma$ - algebra, but I have no idea how to construct/find it here. It is also very well possible that I am completely mistaken on what space I am working on, so there's that.

So then I tried to setup a proof for this question on my own. I also set up a sequence.

$(\alpha^m)_{m \in N} \to \alpha \in \mathbb{R}_+^N$. Then I suppose that there is some sort of jump discontinuity in $U$ and show that it leads to a contradiction.

So $(\alpha^m)_{m \in \mathbb{N}} \to \alpha$ and $U(\alpha^m)_{n \in \mathbb{N}} \not \to U(\alpha)$

  My attempts so far to find a satisfactory proof have been fruitless. Any help would be appreciated, whether it's the proof itself or just an outline or some hints on what information to use from the original question to use.


texts: graph of dependent variable after years of restructuring in panel data

texts:
i'm not very able to use stata. For my thesis, I have a panel data(1970-2017) for different countries and a lot of variables.
In this dataset, there is a dummy (dhairendH) that is equal to one in the years where a country end a debt restructuration.
i would like to graph 3 different dependent variable (it is better if they are overlapped) depending on the 7 years after the restructuration, like the image attached.
The name of the the dependent variables are gini_disp, gini_cons and ginipretax. Obviously, I have variables years and CountryName. The name of the dummy is dhairendH.


texts: So the blue line is Finlands GDP, and it tells the percentual change from the last year. when the line is under 0% does it mean that it is a recession, and when it is over 0% is it an expansion? Is it as simple s that?


texts: How exactly does a central bank determine how much to cut/increase interest rates?

texts:
We all know under what circumstances a central bank tries to cut interest rate and when it tries to increase interest rates, but how do those people know exactly by how much it should change?

I mean, there can be some trial and error, but what are the targets they chase and how exactly do they calculate the money demand, etc. There should be some basis to their conduct.


texts:
Are there any results in economics that require function to be homothetic? The textbook I am using (Essential Mathematics for Economic Analysis) says that function is homothetic when " $f(x)=f(y)$ and $t>0$, then $f(tx)=f(ty)$". It also mentions that there are homothetic functions which are not homogenous like $F=xy+1$.
But then all economic examples in the  book where homothetic function is used turn out to work with homogenous functions too. Then why are they special? Is there some economic example where having homogenous function would not be enough so there must be homothetic function for it to work?


texts: Screw foreign investment, lets just print money

texts:
We often hear of countries securing foreign investment. Stores like this are trumped as major achievements. Foreign investment also has criticisms - profits generated in a country end up going abroad, and there can be national security issues.

Would it make sense to print money instead? The usual argument against printing money is inflation. However, in the linked story, 30bn of foreign money is coming in, so the economy has to cope with that additional spending. If that was printed money instead, it seems that effect would be the same - at least in the local economy.

The other side to this is currency markets and reserves - foreign investment creates demand for the local currency, which printing money doesn't do.


texts:
I think it is hard to derive Eq(5) in paper Chong (2007).
 (http://www.bgu.ac.il/~grade/inst_ineq.pdf) Could anyone share any ideas on its derivations or intuitions behind it? Let's discuss it in more details to help us understand more about this paper. Thank you a lot.


texts:
I wanted to learn how time series analysis is used to study monetary policy/ money and banking data, such as how and which techniques are used to study which data, what kind of problems are studied with which techniques, how are effects of policies gauged etc.

What are some good books/ online courses or other resources for that?


texts: Perfectly competitive constant MC Questions

texts:
If I have a market in which I have constant MC, no fixed costs, and perfect competition- when would it make sense for a new firm to enter the market(granted they have the same technology)? Would I need more information about the market?

also would the cost curves for an individual firm be 1 line since $AC=MC=AVC$ and $MR=MC$ and $P=MC$ under perfect competition, leading to $P=MC=AVC=AC=MR$

and for the market

Supply would be perfectly elastic and demand being a downward sloping curve.


texts: Two good sources (books preferably) that show the leading and most reasonable arguments for/against "trickle down economics"?

texts: I was raised by fairly conservative parents and throughout my childhood have had the impression that Reagan was the standard candle to which all policy should be held to and in particular Reaganomics was as true as the sky was blue. As an adult I've come to realize that it is not so cut and dry and would like some insight on this and would like to know if there are books that defend the for/against on the issue of "trickle down" economics. I would prefer to hear both sides in two separate books, or in a single book as long as both sides are fairly represented. Also please note I am not a student of economics although I have a strong math background.


texts: What models exists for explaining the price of nonrenewable resources?

texts:
It seems to me that the seminal model for the price of nonrenewable resources is Hotelling's rule. However, as the Wikipedia article describes, Hotelling's rule has empirically performed poorly. I know there are some variations that seek to improve on the original model, such as by accounting for changes in extraction cost or other factors. However, I am unfamiliar with this literature. Can anybody provide some more detail about variations on Hotelling's rule? Also, what, if any, alternative hypotheses exist to explain the prices of nonrenewables?

Notes:

This questions is related to a previous question about the impact of fracking on oil prices.


texts: Calculating Time to Balanced Growth Path

texts:
$\textbf{Model:}$
$$\underset{\{c_t,k_t\}}{max}\;\sum_{t=0}^\infty\beta^t\frac{c_t^{1-\gamma}}{1-\gamma}$$
$$s.t.\;c_t=Rk_{t-1}-k_t$$
$$c_t,k_t\geq0$$
At time $t$, $c_t$ is consumption and $k_{t-1}$ is the capital used in production. $0<\beta<1,\;\gamma>0,\;\gamma\neq1$

$\textbf{(a)}$ Compute a balanced growth path in which consumption and capital grow at constant rates.

Solving this using the Euler equation, we get
$$\frac{c_{t+1}}{c_t}=\big(\beta R\big)^{\frac{1}{\gamma}}$$
We know that capital must grow at the same rate as consumption in a balanced growth path, so
$$\frac{k_{t+1}}{k_t}=\big(\beta R\big)^{\frac{1}{\gamma}}$$
This means that:
$$c_t=\bigg(\frac{R}{(\beta R)^{\frac{1}{\gamma}}}-1\bigg)k_t$$
$\textbf{(b)}$ What restrictions are necessary for both capital and consumption to grow at a positive rate on the balanced growth path?

For this question, it seems like all we need is $R>1$

Now, my question is the following: How long will it take for consumption and capital to reach the balanced growth path? In general, how would one calculate time to balanced growth path? Or is it more based on economic intuition?

$\textbf{Edit:}$ According to another student, the professor said this will never reach a balanced growth path. However, the professor never stated why. Can someone give me a reasoning as to why this would never reach a balanced growth path?


texts: Does constant market cap imply reversion to the mean

texts: If the market cap of a market is constant, do stock prices necessarily follow the principle of reversion to the mean? How would one prove this? (I'm pretty sure this is trivial, but I don't know how to express the necessary ideas).


texts: Emergence of notion "primitive business" in the era of Industry 4.0 and globalization

texts:
It has always been the conventional wisdom that businesses should be fit to survive in the market competition, that only the best businesses can survive beyond horizon of several years, that survival of some enterprise certifies both its style of conducting business and its general meaning for the society.

But Industry 4.0 and globalization has created 2 interesting trends:

Automation, robotics and artificial intelligence are providing opportunities to automate jobs, but some investment is required. So - for the first time in the human history the humans compete against machines and sometimes human labour lower the standards of remuneration to survive in this competition. So, in that way the primitive businesses emerge - those enterprises that rely on the cheap human labour and that simply do not make investment. So, if someone has no capital and if someone has enough cruelty to create mean jobs, the he or she can build up primitive business and survive the market competition relying on the cruelty of primitive, low wage jobs. The general society suffer - the society provides cheap labour, the society does no receive taxes from low wage job, the society looses could-be scientists, technologists, ethical businessman, artists and so on, so on.
Globalization and "race to bottom", international and interregional competition relax the standards on labour and renumeration, sometimes countries or regions asks for any job the enterprises can provide and this is again the opportunity for the unethical people to create enterprises with precarious jobs.

So - both those trends do very much good to the society, but those trends also create opportunities for the unhealthy, unethical companies without investment and use of technologies to emerge, so - in short - primitive businesses can exists, survive and even thrive in this new era.

My questions are:

Is there economic research about primitive business or maybe they are called differently in the economic research? There is research about financially-constrained households and how their option space is bounded and how they disturb the usual assumptions about the benefits of free market, free will and utility maximization. Maybe there is literature about primitive businesses as well?
Is there normative economic research that considers the constraining the power of primitive businesses - both - by the increased regulation (e.g. common minimal standards) and by increased opportunities for the workforce to escape the trap in falling the braces of primitive businesses.

p.s. I am aware about the usual thinking that any jobs are good in the era when automation automates away the jobs and that people should work whatever that means. But there is escape from the low standard jobs either by Universal Basic Income or by Universal Dividend (better yet) and people will not become vegetables in these settings, because, the mentally healthy people, according to Maslov et el, prefer self-realisation (science, arts, travelling, volunteering, etc., etc.) and not laziness (and there should be treatment for mentally unfit people).


texts: What if only the government could create money?

texts:
If I understand correctly, under the dominant system of fractional reserve banking, many (all?) private banks can create money by lending.  See, for example, Implications of abolishing Fractional Reserve Banking on mortgages and interest rates.  So, money created when people (or other entities) go in debt, and destroyed when those debts are paid back.

Some organisations, such as Positive Money, advocate there would be considerably advantages if we step away from this system, and only the government could create money.  Quoting from their website:

  History has shown that when banks have the power to create money, they create too much in the good times, causing financial crises, and then create too little money in the bad times, making recessions and unemployment even worse. They put most of the money that they create into house price bubbles and speculation on financial markets, and only put a small amount into businesses outside the financial sector. We simply don’t think that banks, with all their incentives and need to maximise their profits, can be trusted with something as powerful as the ability to create money. And it’s not enough to regulate them, because regulators have already failed to keep them under control, and there’s no reason why they should get it right this time around. We need to stop banks being able to create money. Instead, we want to see the power to create money transferred to a democratic, accountable and transparent process (...)

My question:

What would be the consequence if only a single institution, accountable to the national government, had the ability to create money?  Assume that this institution would use a more or less objective set of criteria to determine how much money to create, for example, in order to meet particular targets.

Edit: A commenter requested more background motivation why this question is specifically about banks.  Allegedly, the system leads to increasing house prices and debts, along with other problems.  My question here is not whether the issues that Positive Money are correct in attributing those problems the current system of private banks creating money; regardless of their correctness, my question is, as stated above, what the consequences would be of having only a single government-controlled institute create money.


texts:
My professor gives us these conditions for the existence of a Competitive Equilibrium (CE) in a pure exchange economy:
$U^i$ is continuous, strictly increasing and strictly concave for all $i$ and $\omega_n > 0$ for all $n$ (where $\omega_n$ is the total endowment of good $n$).

I am trying to demonstrate these conditions but I am a bit stuck. I started using the Maximum theorem but now I cannot go ahead. Any hint?


texts: How to compute the Marshallian demand for this specific utility function

texts:
$$u(x) = x_1^\alpha \cdot (x_2+x_3)^{1-\alpha}, \text{ with } \alpha \in(0,1)$$

I tried to set up the Lagrangian and it turns out $\lambda$ have no solution unless $p_1 = p_2$.

$$L = x_1^\alpha \cdot (x_2+x_3)^{1-\alpha} -\lambda(x_1 p_1 + x_2 p_2 + x_3 p_3 -1)$$

$$\frac{\partial L}{\partial x_2} = (1-\alpha)x_1^\alpha(x_2+x_3)^{-\alpha} -\lambda p_2 = 0$$

$$\frac{\partial L}{\partial x_3} = (1-\alpha)x_1^\alpha(x_2+x_3)^{-\alpha} -\lambda p_3 = 0$$

I noticed this function is similar to C-D utility function. So I'm wondering if I can combine $x_{3}$ and $x_{2}$ as one good and then apply C-S utility function. But this method seems unreliable to me.

Any one can help?


texts: Does a competitive advantage lead to abnormal profit?

texts:
Given that organisational capital is specific and difficult to replicate it is considered a competitive advantage (see e.g. here)
According to Wang (2014)

competitive advantage is obtained when an organisation develops or acquires a set of
attributes (or executes actions) that allow it to outperform its
competitors.

Does a competitive advantage allow a firm to achieve abnormal profit?
Or which other advantage would it confer?


texts: Differences between Slope of budget line and MRS?

texts: Slope of budget line= change in y/ change in x and also  Marginal rate of substitution= change in y/ change in x. If the definitions are same of both then what is the difference between the two? I mean 1. Slope of the budget line will be number of units of good y that the consumer is willing to sacrifice for an additional unit of good x. 2. The marginal rate of substitution (MRS) is the amount of a good that a consumer is willing to give up for another good. Here both definitions means the same, right?


texts: Exposure of two companies in a transaction involving an FX option

texts:
An American company $A$ has sold a manufactured product to a German company $B$, and they agree for the payment of 100,000 EUR in 1 year.

What type of exposure does $B$ have?
What type of exposure does $A$ have?
What is the potential problem for $A$ if it decides not to hedge (i.e. not to cover)?
Repeat the exercise in case the payment is performed in USD.

Let $K_T$ be the exchange rate (EUR/USD) at time $t=T$ (1 year from now), and let $K_0$ be the exchange rate at time $t=0$ (i.e. now).

Since EUR is the domestic currency of $B$, it will take no risk in
the transaction.
If $A$ buys a Forward contract (at time $T$ the firm $A$ will sell 100.000 EUR at a fixed rate $K_F$) but $K_f < K_T$, then it will face an indirect loss of 100,000*($K_T - K_F$) USD. If $A$ buys a Put option which gives it the right to sell 100.000 EUR at the rate $K_P$, it will exercise the option only if $K_P > K_T$, otherwise it will not exercise and will sell 100.000 EUR at the rate $K_T$.
If $A$ decides not to hedge, the potential problem is in the case $K_T < K_0$, because in this case $A$ will face an indirect loss of 100,000*($K_0 - K_T$) USD.
Since USD is the domestic currency of $A$, it will take no risk in the transaction. On the other hand, $B$ should buy a Call option, because it gives $B$ the right to buy 100,000 USD at time $T$ at a fixed rate $K_C$: $B$ will exercise the option if $K_C > K_T$, otherwise it will not exercise and will buy 100,000 USD at the rate $K_T$.

Is the reasoning correct?


texts: Accounting for machines in the labor theory of value

texts:
I have read that the Labour Theory of Value holds that the value of a good or service is determined by the total amount of labour involved in its production. To account for this properly, we must count not only the labour directly involved in finishing a good, but also the labour needed to produce the tools used in that process.

I am curious: how does the LTV suggest the labour involved in producing a machine should be divided across the goods that machine is used to make. In particular,

If the output of a machine is arbitrarily reduced, what happens to the value of the goods being produced? If we simply divide the labour put into the machine across the units produced then it seems like their value should increase, but then it seems like the whole notion of value becomes quite arbitrary.
Suppose I built a machine that, in any given hour, produces one unit of penicillin and one unit of randomly mixed chemicals (from the same raw materials). Does this mean that penicillin and mixed chemicals should have equal value?


texts: Why Yen grew stronger after North Korea's H-bomb threat?

texts:
Financial markets have had only a muted reaction to the dispute in
  recent months, but on Friday assets regarded as havens for investors
  jumped immediately after the news of North Korea’s latest H-bomb
  threat. The Japanese yen firmed as much as 0.5 per cent to ¥111.96 per
  dollar. Gold was also 0.5 per cent stronger at $1,297.09 per ounce.

(Source: Financial Times)

I thought Yen would grow weaker, but on the contrary it grew stronger, why?


texts: How to calculate the ideal maintaining time of a machine?

texts:
I have a question regarding a cost calculation problem:
I have the following curve, which shows, that with increasing number of tasks without maintaining a machine, the error probability for the produced parts increases.

The x-Axis represents the counter of tasks without maintaining the machine. This means the point (10;0.2) says: When the machine wasn’t maintained the last 10 cycles, the error rate is 20%.
Maintaining the machine costs, let’s say 1000 € and one error 15 €. Now I need to find out the perfect maintaining counter, when to maintain the machine.
I thought about multiplying the curve with 15€ and then integrating the function, to take into account the already increased probability of the previous cycles at a specific count. However, I am not sure about this integration step.
Maybe anyone else has any idea how to handle this problem.


texts: Endogenous Growth in the case of externalities (Learning by doing)

texts:
so for the Learning by doing model productivity is defined as $$A_t=BK_t$$.

Inserting this into the optimum conditions leads us to the following:$$r_t=\alpha BL^{1-\alpha}$$ and $$w_t=(1-\alpha)B^{1-\alpha} K_t/L$$.

As we can see, the interest rate here is constant and does not change with capital $K_t$. Intuitively, the reasoning is that more capital used in an individual firm reduces marginal product of capital. However, more capital of an individual firm level also leads to a higher aggregated capital stock (if all firms increase their stock) and hence also to higher productivity A, that can compensate for the decreasing marginal product of capital.

However, could someone explain to me why $w$ increases with $K_t$. What does this intuitively mean?


texts: Demand for utility function given prices and budget

texts:
I have to find the consumer's demand at prices $\textbf{p} = (1,1,1)$
and budget $m=4$ when the utility function is given by
$$u(x_1,x_2,x_3) = 3 \sqrt{x_1+x_2+2x_3}$$ or when transformed
$$\hat{u}(x_1,x_2,x_3) = x_1+x_2+2x_3 $$

I know the answer is $\textbf{x} = (0,0,4)$

What I don't understand: For perfect substitutes the demand is given by $x_1^* = \frac{m}{p_1}$ so the demand should have been
   $\textbf{x} = (4,4,4)$. But why is $x_1^*,x_2^* = 0$?

For the same utility function I want to find the demand at prices
$p=(2,3,p_3) >>0$ and budget $m>0$.

The answer is  \begin{equation} \textbf{x} = \left(0,0,
    \frac{m}{p_3} \right) \quad \text{when} \quad p_3<4 \end{equation}
\begin{equation} \textbf{x} = \left(\frac{m}{2},0,0 \right) \quad
    \text{when} \quad p_3>4 \end{equation} \begin{equation} \textbf{x} =
    \left(\frac{\alpha m}{2}, 0, \frac{(1-\alpha)m}{4} \right) \quad
    \text{when} \quad p_3=4 \end{equation}
where $\alpha \in [0,1]$ because the consumer is indifferent between the bundles

What I don't understand: Why is the demand different depending on what $p_3$ is and how do I know when the demand is different? Personally, I would've said the demand is $\textbf{x} = \left( \frac{m}{2}, \ \frac{m}{3}, \ \frac{m}{p_3} \right)$


texts: why is market clearing price assumed in cournot model with homogenous products

texts: In the cornout model two firms choose the amount of a product they wish to produce. It is assumed that the price that results is the market clearing price for the total supply. Is there a justification for this?


texts: Why are property price-to-rent ratios relatively low in the US?

texts:
I am looking at the data here (for 2015). There are data for 489 cities from around the world, of which 82 are in the US.

Using the measure "Price To Rent Ratio Outside Of City Centre", 69 of the 82 US cities are in the bottom 125 of all cities (roughly the bottom quartile) and the highest-ranked US city is Santa Barbara, CA at #206.
Using the measure "Price To Rent Ratio City Centre", 67 of the 82 US cities are in the bottom 125 of all cities and the highest-ranked US city is again Santa Barbara, CA at #147.

What might explain why the property price-to-rent ratio in the US is relatively low, when compared to the rest of the world?


texts:
This is a basic economics question about scarcity in relation to free goods. The hypothetical question is that if iTunes decided to have free streaming for all their songs, would there still be scarcity for songs and would the incentives change?

I'm fairly new to these definitions and principles as it is economics 101. My understanding leads me to believe that songs remain scarce, as not all consumers have access to computer and as such to iTunes, and the incentives do change, as more people seeking free tunes will buy computers for the additional factor of the unlimited, free streaming.

Am I correct?


texts: Optimization of Households' utility in " Rule-of-Thumb Consumers and the Design of Interest Rate Rules " (Gali et al., 2004)

texts:
I can't figure out how the calculation of first order conditions was carried out.

I can't figure out where the stochastic discount factor came from.


texts: If strict convexity of indifference curves isn't assumed, does MRS have to be negative?

texts:
Strict convexity is defined as

  Let $X$ be a convex set in a real vector space and let $f: X\rightarrow \Bbb{R}$ be a function. $f$ is called strictly convex if $\forall x_1 \neq x_2 \in X,$ and $\forall t \in (0, 1)$:$$f(tx_1+(1-t)x_2) < t f(x_1)+(1-t)f(x_2)$$

If this doesn't hold, does marginal rate of substitution still have to be negative?


texts: Real world production-possibility frontier example?

texts: I'm reading an economics textbook and trying to make sense of PPF (or PPC) concept. All examples I could find are like producing computers vs food. I can't understand how it can be evaluated and applied to real life situation. Do you know any practical example of PPF?


texts: How to determine the Steady State of this model?

texts:
Consider the system of two equations: $$y_t=\beta\mathbb{E}_t[y_{t+1}+\gamma\cdot z_{t+1}]$$ $$x_t=\rho x_{t+1}+y_t$$ $$z_t=(z_0-Z_t)e^{-at}+z_T$$
  Determine the steady state.

The solution manual says: $$y=\frac{\beta\gamma z}{1-\beta}$$ $$x=\frac{\beta\gamma z}{(1-\beta)(1-\rho)}$$
Now I have no idea how to derive these values. The lecture sheets don't mention anything, except that the steady state is solved when we have the value of the shock $z_t$ (intial and terminal). Could anyone explain me the mathematical derivation of the steady state?


texts: MATLAB code: Plot utility function and budget constraint

texts:
how do i plot these?
i have this utility function: $$U(x_1,x_2)=\log(x_1)+\beta \log(x_2)$$
and this budget constraint: $$p_1 x_1+p_2 x_2=R$$      where $R=3, p_1=0.5, p_2=0.5$
i dont know how to plot these so i can show the optimum point from $MRS=p_1/p_2$
this is my code:
clear all; clc; close all;
syms x1 x2 beta p1 p2 t x1_star x2_star

R=3; %disposable income
grid_points=100;
beta=1/3
p1=0.5;
p2=0.5;
t=0.25;
q_x1=p1+t %x1 quantity

maxX1=R/p1;
maxX2=R/p2;
maxX1_t=R/q_x1;

x1=linspace(0, maxX1, grid_points);
x2=(R-x1*p1)/p2; %budget constraint
plot(x1, x2, 'LineWidth',1);
hold on
x1_t=linspace(0, maxX1_t, grid_points);
x2_t=(R-x1_t*q_x1)/p2; %budget constraint
plot(x1_t, x2_t, 'LineWidth',1);

%optimal choices

syms x1 x2
%curve1

UU(x1,x2)=log(x1)+beta*log(x2);
SMS=diff(UU,x1)/diff(UU,x2)
% R=p1*x1+p2*x2
[x1_star,x2_star]=solve(p1*x1+p2*x2-R, (3*x2)/x1-p1/p2)

UU_1_star=UU(x1_star,x2_star)
UU_1_star=1.6392
X=solve(UU(x1,x2)==UU_1_star);
hold on
fplot(X)
ylim([0 6])
xlim([0 6])

%curve2

UU(x1,x2)=log(x1)+beta*log(x2);
[x1_star2,x2_star2]=solve(q_x1*x1+p2*x2-R, x2/(beta*x1)-q_x1/p2)
UU_2_star=UU(x1_star2,x2_star2)
UU_2_star=1.2338
X2=solve(UU(x1,x2)==UU_2_star);
fplot(X2)

As you can see i have problems plotting


texts: Why is economic growth measured exponentially rather than linearly?

texts: If economic growth is indeed highly desirable (see this question), why must this growth be exponential? With finite resources, exponential growth might hit limits rapidly (or be impossible?). Why not express growth in linear rather than exponential terms?


texts:
Unsure if this is off topic but have there been any attempts to look at the "economics of nature"? I mean this in the sense of measuring the "economic activities" of the animal kingdom.

From wikipedia

  An economy (From Greek οίκος – "household" and νέμoμαι – "manage") is an area of the production, distribution, or trade, and consumption of goods and services by different agents in a given geographical location.

we can see all of these activities in a bee hive (other than trade I guess). It seems like it can work very well with alot of the inter-temporal models we see in intermediate macroeconomics.

Practical questions for analysis include:

How is "income" or food distributed in a colony
what is the Lorenz curve in a colony
what is the MRS between present and future consumption in a colony

It would be interesting for the sake of real world policy application, much like engineers design from nature can we create economic policy from it?


texts: What is the difference between Nash equilibrium and Pareto Efficiency. Can you give me an example where Nash equilibrium is not Pareto Optimal?


texts: Can a monopoly supply negative units to one of its two markets?

texts:
A question I have seen in my microeconomics textbook is as follows:

Consider a monopoly supply to both a domestic and foreign market, where the market demands are:

Yd(pd) = 20 - 2pd, hence pd(yd) = 10 - Yd/2

Yf(pf) = 20 - pf, hence pf(Yf) = 20 - Yf

Total cost = .5Y^2 +20

Total output, Y = Yd + Yf

We are assuming the monopolist cannot price discriminate and therefore pf = pd = p

We are asked what price should the monopolist now set for its output? What quantity will it sell to each market?

To solve this question i first calculated the new total market demand, or aggregate demand by summing both the foreign and domestic markets.

D(p) = 20 - 3p + 20 - p = 40 -3p, hence p = 40/3 - Y/3

I then calculated total revenue and marginal revenue.

TR = (40/3)Y - (Y^2)/3 , hence MR = 40/3 - 2Y/3

I then calculated marginal cost.

MC = Y

I then solved for Y where MR = MC and substituted the value into the market price function.

Y = 40/3 - 2Y/3, hence Y = 8, p(8) = 32/3

My problem arises when i substitute this value for P into the domestic market's output function to calculate how many units will now be supplied to the domestic market.

Yd(8) = 20 - 2(32/3) = -4/3

My interpretation of this is that the monopoly is purchasing 4/3 units from the domestic market to sell into the international market, however this concept is not familiar to me. Having a negative answer for units does not sit well with me. Any guidance as to something i did wrong in calculating the question or an economic interpretation of the solution would be much appreciated! I am very confused.


texts: Is it better for economic growth to invest in stocks or to purchase products?

texts: I've recently been interested in economics and I admit that my understanding concerning it is limited. However my question is if investing in stocks is good for the economy. From my understanding, it is just the redistribution of ownership and wealth from individuals. The businesses are not gaining money, and so profit can be gained there.  It seems that it would be substantially better for the economy to purchase products directly from the company, so that the businesses may gain money from consumer spending.


texts:
I understand the $MV=PQ$ identity. I also understand the benefit for the government in some cases to having non increasing over time (even if high) values of $\Delta P$ (stealth tax & seigneur-age & real gdp shock,...).

What I do not understand is in what cases would the benefits (for the government) of increasing rates (second derivatives) of inflation out weight the costs?

Because it seems to me many countries (Venezuela, Zimbabwe, apparently Iran right now) could have --yet did not-- hike short term rates (to reduce $\Delta M$ and $\Delta V$) when inflation ($\Delta P$) was going from 'high but stable' to 'out of control' (systematically increasing $\Delta P$).


texts:
As far as my knowledge goes, a "collateralized debt obligation" (CDO) restructures existing bonds into "layers" of debt whereby each layer has similar kinds of bonds with similar kinds of features in it. So, for example, the lowest layer could be the riskiest layers where borrowers are expected to default the most and the uppermost layer would be one where borrowers with relatively higher credit scores would be placed. These are then sold forward to willing investors. These CDO's can be further restructured into a synthetic CDO but lets not get into that.

So now, a "credit default swap" (CDS) could be placed against a CDO thereby insuring against a loan default. So, for example, if a collective bunch of loans in the bottom most layer go bad within the stipulated time, then the insurer (bank) would be forced to pay back to the insuree (any third party).

Now, lets take the scenario of a hospital with cancer patients from Stage 0 to 5. A third party comes up to the hospital and asks the hospital to restructure the cancer patients files into "tranches" such that Stage 5 patients would be at the bottom most layer and Stage 0 at the top. He would then like to buy an insurance against the bottom most layer for a period of 1 month. So, if the insured layer goes bad in that month (which basically means a certain number of people in that layer die), the hospital would have to pay him back 50X the premium amount. The hospital could even create a separate financial subsidiary to carry out the above task.

Of course, this is completely unethical and really sad. My question is: What stops this from happening? Why is it seemingly okay to do this on a housing loan but not medical patients?


texts: Time costs and the St. Petersburg paradox

texts:
In the St. Petersburg paradox, we end up with the problem that a rational agent should be willing to play the game for any wager, if we look at expected income or utility of expected income. The standard "solution" to this is to instead look at expected utility of income, where the marginal utility of income is decreasing.

Intuitively, decreasing marginal utility (for instance, where utility is logarithmic) of income makes sense, since one could argue that the utility of income comes from purchasing power, and standard indifference curves are convex.

But I've seen people (in a statistics department) point out that playing the game also has a time cost in addition to the monetary wager. This suggests potential other trade-offs that could affect decision making here, such as the fact that this time could be spent on more enjoyable pursuits, or in working and making money, even if the decreasing marginal utility is still the most convincing explanation for people's behavior to me.

How might be time-costs factored into the St. Petersburg problem, in terms of limiting the player's wager, and what literature might provide a good coverage of this?